When people have accumulated so much debt that they can no longer afford the required payments, bankruptcy is sometimes the best solution. In Chapter 7—or liquidation—bankruptcy, the court supervises as you liquidate your assets to repay creditors. It then discharges any remaining debts, so you are out from under the obligation quickly. Under Chapter 13—or restructured—bankruptcy, the court restructures payments so you can afford to repay. The process takes longer, but you don't have to liquidate assets. While both of these options can help, many people wonder whether to file their petition before or after filing their tax return.
Chapter 7 Bankruptcy
It simplifies matters if you file the current year's tax return before filing for Chapter 7. The trustee assigned to your case will want to see your most recent returns. If you have not yet filed for the current year, it will require an explanation, add an extra step, and slow down the process. Some people who are owed a refund file taxes before filing for Chapter 7, with the intent to use the refund for personal expenditures. If you plan to do this, you will need to show the trustee that the refund is exempt. Otherwise, they can use it to begin paying off your creditors.
Chapter 13 Bankruptcy
To file Chapter 13, you must be current on your tax returns. You might be able to squeeze out more time by providing copies of the previous four years' returns. Otherwise, if you don't file in time, the trustee can request a motion demanding that you file. Failure to do so can result in the dismissal of your petition. Alternatively, the IRS may file a claim for you with its best estimate of the amount you owe. Unfortunately, these estimates are usually higher than if you had filed the return yourself.
For expert legal help to guide you through a bankruptcy, contact The Gil Law Firm in Dothan, AL. They have been in business since 2000 and serve clients in Alabama, Georgia, and Florida. In addition to Chapter 7 and 13 bankruptcies, they also specialize in personal injury, Supplemental Security Income disability, and debt consolidation cases. Visit their website to read what previous clients have to say about them, or call (334) 673-0100 to schedule a consultation.