The Tax Responsibility After a Chapter 7 Bankruptcy
Bankruptcy Filing Requirements
- Certain requirements have to be met to file a Chapter 7 bankruptcy. The average income for the six months preceding the bankruptcy cannot be more than the state average, if it exceeds the state average a Chapter 13 bankruptcy would be filed. A credit counseling session must be completed by a federal agency and they must do an analysis of your current budget to ensure that it is structured properly. The person filing bankruptcy should not be able to pay the minimum payment required of a Chapter 13 bankruptcy of $100 per month and the bankrupt person must file a statement of financial affairs.
- Priority taxes are not discharged in a Chapter 7 bankruptcy. Priority taxes are taxes that have yet to be assessed, taxes that have been assessed within three years prior to the bankruptcy, or taxes that have been associated with fraud.
- When a bankruptcy claim is created, the bankruptcy estate becomes a legal tax entity. Any excess income that the bankrupt earns in excess of the defined exemptions is considered income of the estate. In order to create a bankruptcy estate, an employer identification number has to be obtained.
- The bankruptcy trustee is responsible for tax returns after bankruptcy is filed. A tax return must be filed within 90 days of the bankruptcy filing. Failure to file within 90 days of the bankruptcy petition can result in the bankruptcy being overturned. A bankruptcy trustee will elect to end the bankrupt individuals tax year on the day the bankruptcy is filed. A second tax year is created from the point of bankruptcy until the end of the current tax year.