How Does Bankruptcy Affect A Tax Return?
Bankruptcy is certainly one of the most dreaded financial choices a person or couple could have to make. It basically is a way of saying that you as a person are insolvent and are unable to repay your debts. By doing this you discharge your burdens, but you aren’t allowed to walk away from these debts without consequences. For example there are laws that require you credit be reported in such a manner that prevent you from taking out large loans or other forms of credit. Bankruptcy can affect a tax return as well.
Use Chapter 7 Or 13 To Discharge Tax Debt
Fortunately in this tough financial time a person can also let themselves free of debts to the government as well. Not everybody will be able to qualify, but those that are filing chapters 7 or 13 will more than likely be able to on a tax return as well. There are specific forms you will be required to fill out, and you will need legal documentation as proof. The government will more than likely allow you to absolve your debt. So, yes, bankruptcy does affect a tax return.
What Does This Mean For Future Tax Returns?
The tax code makes specific time frames of debt owed to be allowed to be discharged. That means that you may still have to pay back some owed taxes if the debt occurred before or after a certain amount of time. You may also only qualify for the current year of when you declared bankruptcy to be forgiven. Make sure that you understand what your rights and requirements are so that you don’t get yourself into more financial trouble. Chapter 7 will allow you to discharge all debts including on a tax return, while others will not.