727·330·3500    ·    Denise Mensa-Cohen, Enrolled Agent    ·    Office Located in Clearwater, Florida
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The most common type of bankruptcy for individuals is Chapter 13, which allows individuals and small business owners in financial difficulty to repay their creditors. Often, it is a last resort for wage earners (individuals and those filing jointly as spouses), the self-employed and sole proprietor businesses to get out of their debts. While the overall bankruptcy rate has been dropping in recent years, Chapter 13 appears to be increasing, according to the US Courts. If you’re considering filing for Chapter 13, here’s what you should know about federal tax obligations:

First, taxpayers must file all required tax returns for tax periods ending within four years of their bankruptcy filing. During a bankruptcy taxpayers must continue to file, or get an extension of time to file, all required returns. Failure to file returns and pay current taxes during a bankruptcy may result in a case being dismissed, converted to a liquidating bankruptcy chapter 7, or the chapter 13 plan may not be confirmed. Furthermore, during a bankruptcy case taxpayers should pay all current taxes as they come due.

What Else You Should Know

If one of the reasons a taxpayer is filing bankruptcy is overdue federal tax debts, they may need to increase their withholding or their estimated tax payments. The Tax Withholding Estimator can help people determine the proper withholding. The IRS.gov Estimated Taxes page has more information on estimated taxes.

If the IRS is listed as a creditor in their bankruptcy, the IRS will receive electronic notice about their case from the U.S. Bankruptcy Courts. People can check by calling the IRS’ Centralized Insolvency Operation at 800-973-0424 and giving them the bankruptcy case number.

People can still receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down their tax debts. Taxpayers can see if their refund has been delayed or offset against their tax debts by going to the Where’s My Refund tool or by contacting the Centralized Insolvency Operations Unit.

Other Types of Bankruptcy

Partnerships and corporations file bankruptcy under Chapter 7 or Chapter 11 of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. Other types of bankruptcy include Chapters 9, 12 and 15. Cases under these chapters of the bankruptcy code involve municipalities, family farmers and fisherman, and international cases.

Please call if you have any questions about federal filing obligations and Chapter 13 bankruptcy.

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