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How Bankruptcy Affects Your Tax Filings

 Posted on April 25, 2024 in Bankruptcy

Fort Worth County bankruptcy lawyerFiling for bankruptcy can have significant implications on your tax obligations. You must understand how bankruptcy impacts your tax filings to ensure compliance with state and federal tax laws. A Texas lawyer can help you learn how bankruptcy will affect your tax filings for your specific situation.

Income Tax Debt

In Texas, income tax debt may be dischargeable in bankruptcy, depending on specific criteria. Generally, income tax debt that meets the following conditions can be eliminated through bankruptcy:

  • The debt relates to a tax return filed at least three years before the bankruptcy filing date
  • The tax return was due at least two years before the bankruptcy filing, including extensions
  • The tax assessment occurred at least 240 days before the bankruptcy filing
  • The tax return was not fraudulent, and you did not willfully attempt to evade taxes.

If your income tax debt does not meet these requirements, it may be considered a non-dischargeable debt, meaning you will still be responsible for paying it after bankruptcy.

Property Tax Debt

Property tax debt in Texas is generally not dischargeable in bankruptcy. This means that even after filing for bankruptcy, you will still be liable for any outstanding property taxes owed to local taxing authorities. However, if the property is sold during the bankruptcy process, the proceeds from the sale may be used to pay off the property tax debt. It is also important to note that while bankruptcy may not eliminate the property tax debt, it could provide temporary relief from collection efforts.

Taxes Incurred During Bankruptcy

Any tax obligations incurred during the bankruptcy process must be paid in full. This includes income taxes owed for the current tax year and any taxes that may become due while your bankruptcy case is pending. These tax obligations are considered priority debts and typically cannot be discharged in bankruptcy. Make sure that you plan accordingly and ensure these taxes are paid to avoid potential legal complications.

Tax Refunds and Bankruptcy

If you are entitled to a tax refund while your bankruptcy case is active, the refund may be considered part of the bankruptcy estate. In such cases, the trustee assigned to your case may claim the refund and distribute it among your creditors. However, depending on the specifics of your case and the bankruptcy laws in your state, you may be able to exempt some or all of your tax refund from the bankruptcy estate. It is important to consult with a bankruptcy attorney to understand how these rules apply to your situation and to plan accordingly.

Tax Filings During and After Bankruptcy

Bankruptcy does not absolve you from your obligation to file tax returns and pay any taxes owed during and after the bankruptcy process. Failure to comply with tax filing requirements can result in penalties, interest charges, and potential legal consequences.

As part of the bankruptcy process, you must provide detailed information about your income, assets, and liabilities, including any outstanding tax debts. Be transparent and accurate in your tax filings to avoid any complications or potential dismissal of your bankruptcy case.

Contact a Fort Worth County, TX Bankruptcy Lawyer

By understanding how bankruptcy affects your tax filings, you can make informed decisions and take the necessary steps to resolve your financial challenges while remaining compliant with state and federal tax laws. An Arlington, TX bankruptcy attorney can help make the process less overwhelming. Call Acker Warren P.C. at 817-752-9033 for a free consultation.

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