Common questions that clients filing for bankruptcy ask are about taxes, especially around this time of the year. What should I do if I owe taxes? What should I do if I expect a large refund? First thing first is to file taxes, on time–by April 15th. The Bankruptcy Tax Guide (IRS Publication 908) specifies when a bankruptcy petitioner can request a tax extension.

Usually, an individual files Form 1040. If the individual debtor has a bankruptcy trustee, then the trustee must separately file a Form 1041, according to Intuit/TurboTax. This form files details about the bankruptcy estate. By “estate,” it means the grouping of the petitioner’s assets used to pay creditors.

While you are filing for bankruptcy, you can’t take on new debt. But, in a Chapter 7 bankruptcy, tax debt will not affect your case, whereas in a Chapter 11 or 13 bankruptcy, tax debt means a trustee may dismiss the case or turn it into a Chapter 7 case. Chapter 7 debtors will simply have to pay the taxes. Like a parking ticket, which is government fee, tax debt is non-dischargeable.

Tax refunds are a different story. Depending on which bankruptcy chapter you file, your refund may be treated differently. In Chapter 7, part of the refund may be used to pay debts and in Chapter 13, it may be applied to your estate as a payment. It is important to speak with a lawyer if you are in any of these scenarios. Finally, if you receive a tax refund and you spend it, then make sure you note what you spent it on as your trustee may ask you what you did with your refund when you have your 341 Hearing. Depending on your tax circumstances, you may also want to delay the filing of your bankruptcy with the courts, so consider asking an attorney for more information.

If you are considering filing bankruptcy or if you have questions about bankruptcy, then you should speak with a qualified lawyer. Attorney Jayson Lutzky has 30 years of experience practicing law in New York. He offers free in office consultations at his Bronx office. To set up an appointment, call 718-514-6619 today or visit www.MyNewYorkCityLawyer.com to learn more.