Tax preparation in Weston considers your finances and ensures you’re filing the correct taxes with the federal government. What happens if you become insolvent and file for protection under bankruptcy? How does it affect your individual tax returns?
Bankruptcy is a legal remedy for businesses and individuals who cannot resolve their obligations under normal circumstances. The measure preserves the debtor’s rights to receive debt relief and the creditor to be repaid.
There are various chapters of the Bankruptcy Code, but only two are available for individuals: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy liquidates your available assets to pay your creditors in one lump-sum amount. This clears your debt up, and you’re free to start over on a new slate. You get to keep some assets that your trustee deems essential for daily living. You can also restart your tax planning from scratch.
On the other hand, Chapter 13 bankruptcy will attempt to negotiate a repayment plan for your debts. It’s like debt consolidation, but instead of a bank, your trustee will be in charge of collecting your payments and distributing them to your creditors.
The repayment scheme covers several years, and your monthly payment depends on your income. You also retain all your existing assets because you’ll pay your debt in installments.
Under United States law, you receive your tax refunds at the end of each year after filing your paperwork. After the Internal Revenue Service deducts your exemptions from your total taxes, you’ll receive what is left as a reimbursement.
If you file for Chapter 7 bankruptcy, your trustee will seize your tax returns. They will use these as additional funds to settle your obligations. How much the appointed trustee receives depends on each tax return’s circumstances. For instance, if you have a deduction from an expense incurred after filing bankruptcy, you get to keep the refund.
Under Chapter 13 bankruptcy, your trustee retains, by default, a claim on your tax returns for every year the plan covers. However, you may keep your tax refund if the debt restructuring plan excludes your refunds from the program. You may also get to keep the annual reimbursements if you agree to pay 70 to 100 percent of your unsecured debts.
You must seek the help of a Tax CPA and a bankruptcy lawyer to fully take advantage of the bankruptcy process.
Hiring an expert ensures you avoid legal complications due to incorrect filing. Contact us now, and we’ll discuss how we can help you.