Taxes Can Be Complicated by Bankruptcy Process
Filing one’s own personal taxes can be confusing for a New York resident. The process can be further complicated when an individual must file his taxes during bankruptcy proceedings. Depending upon the type of bankruptcy that the individual pursues, he may or may not have to file a separate tax return for his bankruptcy estate.
For example, in a Chapter 13 bankruptcy, a debtor only files one form 1040 for his personal taxes. He does not have to do anything separate for his property that is being reorganized under the bankruptcy process. However, in a Chapter 7 bankruptcy, the property collected for liquidation is placed into a separate bankruptcy estate. That estate is treated as a separate entity from the debtor and must have its own tax documents filed for the relevant tax years.
Chapter 12 bankruptcy, a form of bankruptcy that is only available to certain individuals who work in the agricultural and fishery sectors, follows generally the same tax rules as Chapter 13 bankruptcy. Chapter 11 bankruptcy, a process that many businesses and some individuals utilize to repay their debts, more closely follows the tax rules applicable to Chapter 7 bankruptcy. Individuals who are planning to file for Chapter 7, Chapter 11, Chapter 12 or Chapter 13 bankruptcy may choose to speak with a bankruptcy attorney before submitting their paperwork to the bankruptcy courts in order to better understand their possible tax responsibilities.
The Internal Revenue Service provides useful information for debtors about their potential tax responsibilities when they choose to utilize one of the many different bankruptcy options. However, that information can be complicated to work through on one’s own. Some individuals who must face bankruptcy proceedings utilize the professional services of bankruptcy lawyers to help them understand and satisfy the many requirements of their chosen bankruptcy paths.