Bankruptcy

Unfiled Tax Returns: Chapter 13 Bankruptcy

By Jonathan Alper

I received an interesting email about Chapter 13 and income taxes from attorney Larry Heinkel from St. Petersburg. Mr. Heinkel specializes in the area of income taxation and bankruptcy and represents debtors in bankruptcy courts throughout Florida. (taxproblemlaw.com). Here?s what he said. "Over the last several month I have had several clients see me about owin taxes after filing chapter 13 bankruptcy. The usual fact pattern is that (the client files Chapter 13) even though there are unfiled tax returns. The client then has the returns prepared to file with the IRS and the trustee only to discover that the tax debts (all being priority...) are too large for the client to repay throu th chapter 13 plan. As a result, the case is either dismissed or converted which does not do the client/debtor any good at all."

Mr. Heinkel says that the better  approach is to prepare the returns before attempting Chapter 13, and then see if the client can afford to repay the tax debt in full as a priority debt in a five year plan. If not, then the client should not file bankruptcy just yet. Instead, Heinkel suggest filing the taxes and working out a payment agreement with the IRS. Then, after the returns have been viled for two years- and assuming the taxes are then three years old and meet other bankruptcy tests- file a Chapter 7 to discharge the taxes in full.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida.

Full post as published by Florida Bankruptcy Law on June 29, 2008 (boomark / email).