When money troubles hit, many things are racing through your mind. How will I pay my mortgage next month? What bills can I pay right now? What if I get ill? Even though you spent much of you life putting away a portion of your income in a savings account, you never anticipated your income being impacted this much by the current conditions. As a single mom, you have constantly lived a scheduled and routine life to keep everything in order for your children. And in order to regain this order, you are evaluating how you could use your tax return to address your debt situation and how tax filings impact bankruptcy filings.
Taxes and bankruptcy filings
Because filing for bankruptcy is likely the last effort you will make in addressing you financial woes, much thought and consideration needs to go into a filing. For anyone seeking financial relief through a bankruptcy filing, their filing must occur after taxes are filed. This is done this way so any tax liabilities can be determined. However, it is important to note that you may not have to pay those taxes immediately if you are filing for bankruptcy.
So whether you are filing by the regular deadline or at your extended deadline, you must wait to file for bankruptcy after you have completed your tax filings. The IRS states that all taxes that become due during a bankruptcy case should be filed; however, it is important to note that taxes can be dischargeable by bankruptcy.
Discharging taxes though bankruptcy
While many are under the impression that taxes are a different type of debt, meaning they cannot be discharged through debt; however, this is not true. Taxes can be discharged and forgiven through the Chapter 7 bankruptcy process; however, there are limits. One common limit to this is the need for the taxes to be more than three years old and the filer must have filed their tax returns more than three years before the bankruptcy filing.
Filing for bankruptcy is about timing. You need to be ready for the process not only mentally and emotionally but also strategically. Because you will be able to file after you have filed for taxes, this gives you time to assess the process better and how it will overall address you debts and impact your financial life immediately and into the future.