You may file for bankruptcy because you cannot pay your federal taxes. There are several things that you should understand when you choose this route.
When you file for bankruptcy, you usually compile a list of your creditors. The Internal Revenue Service says that you should indicate that the IRS is one of your creditors. This allows a representative from a bankruptcy court to get in touch with this department. If you want to ensure that the IRS understands your situation, you can always reach out. A representative can look up your bankruptcy case number and verify that the department has your details.
What happens to taxes during bankruptcy?
You typically have to file your taxes each year while the bankruptcy is ongoing. Sometimes, you may require an extension. You have to request and receive an extension before you file taxes after the deadline.
Additionally, you still may owe taxes each year. Although you filed for bankruptcy, you have to pay your current taxes. If you do not, a bankruptcy court may dismiss the case. You could also risk dismissal if you do not file your tax returns.
What happens to your tax refund?
Filing for bankruptcy does not mean that you will no longer receive a tax refund. According to the Internal Revenue Service, the department pays out tax refunds even during bankruptcies. However, the IRS may sometimes apply your refund to your tax debt. If you expect a refund but do not see it in your account, you can usually contact the IRS. A representative can explain whether you will receive the refund or if it will decrease your tax debt.
After your bankruptcy has ended, you may no longer be liable for portions of your tax debt.