Do I Need to File or Re-File my Taxes Prior to Filing for Bankruptcy?
Updated: Feb 8
Tax returns are among the documents required to be provided the Trustee, at least 7 days prior to your 341 Meeting of Creditors, though this time-frame will vary depending upon local rules. Along with income records, bank statements, and other documents, tax returns, at least 2 years, perhaps as many as 4 years’ worth, depending upon whether you are filing a Chapter 7 or a Chapter 13 bankruptcy, must be provided directly to the Trustee by your attorney.
Therefore, if you have not filed your most recent or any prior year’s tax returns, the return must be filed prior to the filing of your bankruptcy petition. If the Trustee has not received the returns required prior to the 341 Meeting, the Trustee will likely, at best, adjourn the hearing, or, at worst, file a motion requesting the dismissal of your bankruptcy case.
What if you have filed for an extension, however, or if there was an inaccuracy in a prior return?
If you have filed for an extension, the outcome of reaching the 341 Meeting without having provided a full return depends greatly upon the good will of the Trustee assigned to your case. Ultimately, however, the returns must be provided and the fact of an extension having been filed is very likely not going to be very persuasive to the Trustee. You should proceed with the filing of your bankruptcy, if this is the case, with the understanding that your accountant may have to work faster than originally anticipated to get that return filed.
If there was an inaccuracy, or, worse, some level of lack of full disclosure, in any prior filed return for the income earning years that must be reported in your bankruptcy petition, this is a larger and more complicated issue.
Bankruptcy and tax reporting are both Federal processes but are not interlinked. However, you must by law report all income earned from all sources for a number of past years in your bankruptcy petition regardless of whether you disclosed or involuntarily or voluntarily failed to disclose the income in your tax return. While there is no obligation for the Trustee to do so, there is nothing preventing him or her from notifying the IRS of any discrepancy.
The income must be disclosed, period. “Attorney-client privilege” does not mean that your attorney can or will assist in a continuing failure to properly disclose income to the IRS by violating those independent ethical obligations with regard to the disclosures required in your bankruptcy petition.
If there has been any error or impropriety in a prior filed return, that error should be corrected with an amended return prior to the filing of the bankruptcy. If there is a debt to a Federal or local taxing authority as a result of the correction, this will, at the very least, enable your attorney to give you the best advice for addressing the debt along with the rest of your debt-load in your bankruptcy case.
Guest Post by John M. Hilla, Michigan Bankruptcy Attorney