Tax Returns After Filing a Las Vegas Chapter 13 Bankruptcy

A Chapter 13 bankruptcy case lasts between three to five years. That is three to five New Years, three to five Fourth of July fireworks, and three to five Superbowls. It is also three to five Tax Days (usually April 15). Tax Day is an important concern for anyone in Chapter 13 bankruptcy, and the debtor ignores the importance of this day at his own peril.

During a Chapter 13 bankruptcy the debtor is required to commit all disposable income to repay creditors. Basically, the bankruptcy debtor pays what he or she can afford to pay over the repayment plan period. A debtor who receives a large tax refund is essentially telling the bankruptcy court that this money was not needed, since the debtor elected to allow the U.S. government to hold onto it (interest free!) during the tax year. This income tax refund is disposable income, and the trustee may ask for it!

In theory, avoiding this problem is a simple matter of adjusting your tax withholding. Instead of getting (or losing!) a fat income tax refund in April, you receive a small net increase in income each paycheck.

The difficulty in adjusting your withholding is that the solution could be worse than the problem. If you withhold too little, you could create a tax deficit that you may have trouble paying. Under the current version of the Bankruptcy Code, adding new tax debt could also create a situation where your bankruptcy case may be dismissed. At any rate, a sizeable tax debt you are unable to pay will cause a serious complication for you and your attorney.

If you are contemplating a Chapter 13 bankruptcy filing, discuss your withholding status with your attorney. Your attorney can instruct you whether it is important to adjust your withholding, or to consult with a tax professional to project your tax liability. Ideally, your income tax return will show little or no return, or little or no tax debt.

0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Disclaimer

This website is an advertisement. The information presented at this site should not be considered formal legal advice nor the formation of a lawyer or attorney-client relationship. You are advised that the acts of sending e-mail to or viewing or downloading information from this website does not create an attorney-client relationship. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. Assistance we provide may include bankruptcy relief under Title 11.

Contact Us

Copyright Ⓒ 2021. Freedom Law Firm – All Rights Are Reserved.