Technically, you don’t have to have your tax returns filed before your bankruptcy is filed. But, depending on whether or not you file a chapter 7 or a chapter 13 bankruptcy in Colorado, you may have to have up to the last four years of tax returns filed shortly after your bankruptcy case is filed.
There is no requirement in a chapter 7 bankruptcy for you to have your unfiled tax returns filed before or after your bankruptcy is filed. If any of your unfiled tax returns result in a balance owed to the taxing authority, that is not going to go away after your bankruptcy. It’s possible to eliminate tax debt in bankruptcy, but one of the requirements to do so is that the returns must have been filed at least two year before your bankruptcy was filed.
However, your chapter 7 bankruptcy trustee may require you to file any unfiled tax returns before he will finish his administration of your case. The reason is simple: in Colorado, your tax refunds may not be protected in bankruptcy. He can force you to turn it over so that he can distribute it to your creditors. Oh, and he also gets to keep a percentage of whatever you turnover. If you don’t file your tax returns or turnover any refunds you’re entitled to, he’ll ask the court to revoke your discharge. That means that you’ll be left without the protection of the bankruptcy court and will still owe all of the debt that led you to file bankruptcy in the first place.
In a chapter 13 bankruptcy, section 1308 of the Bankruptcy Code requires “[n]ot later than the day before the date on which the meeting of the creditors is first scheduled to be held under section 341(a), if the debtor was required to file a tax return under applicable nonbankruptcy law, the debtor shall file with appropriate tax authorities all tax returns for all taxable periods ending during the 4-year period ending on the date of the filing of the petition.”
So, the last four years of returns have to be filed in order for the court to approve your chapter 13 repayment plan. If you don’t get those returns filed, the court will dismiss your case and your creditors will be able to resume collecting your debt since you’ve lost the protection of the bankruptcy court. Fortunately, unlike a chapter 7 if you don’t comply with the trustee, you could re-file your chapter 13 after you get your returns filed.
Again, technically it’s possible to file your bankruptcy before your bankruptcy, but is it a good idea? I don’t think so.
Unfiled tax returns can create unnecessary problems in your bankruptcy. Unless you need to file your bankruptcy right away to stop a foreclosure or garnishment, I recommend getting your taxes in order first.
If you’d like to learn more about the bankruptcy process, I hope you’ll schedule either a free phone or video consultation with me. I’m an experienced bankruptcy attorney in Denver, Colorado who has guided more than a thousand clients through the bankruptcy process. I offer free phone and video consultations to discuss whether or not bankruptcy might be a good option for you. The easiest way to schedule an appointment is by clicking here.