Once a taxpayer files for bankruptcy protection, the bankruptcy court collects the tax debt instead of the Internal Revenue Service. According to the law of bankruptcy if you have filed the tax debt it would vary depending upon the Bankruptcy code in U.S. The bankruptcy judge would decide whether the tax debt would either be paid or discharged.
Types
There are varied specifications in different chapters of bankruptcy. The bankruptcy estate is treated as a separate entity from the individual taxpayer,this is the main feature of chapter 7 and 11 bankruptcy. But Chapters 12 and 13 does not have this specification. When filed for Chapter 7 or Chapter 11 bankruptcy,the court would appoint a trustee who would file one return for the estate and then you have to file your own individual return. In case of Chapter 12 and 13 only one return needs to be filed.
Significance
The bankruptcy judge would determine how your assets are split among your creditors as you file for bankruptcy protection and the assets are relocated into an estate.
Penalties
During the time of bankruptcy the penalties won’t be that dominant. After the bankruptcy has been discharged you have to pay for the consequences of filing bankruptcy.
Features
The amount of tax debt you owe would be determined by the trustee of bankruptcy estate. The trustee must file a tax return on behalf of the debtor, an estate return or an estate return plus an individual return. This would be depending on chapter of bankruptcy you have filled.
Tax Returns
The case for filing for bankruptcy would be dismissed if you failure to file a tax return And even if it is pending after the date of filing for bankruptcy protection the IRS can request the bankruptcy court to order a conversion. The court can order conversion or dismissal if a debtor who has filed for chapter11 failed to make the payment of tax on time after the date of filing of the bankruptcy petition.
Warning
The IRS statute of restrictions is generally for 10 years and it can get extended for six months after the discharge of bankruptcy. After your bankruptcy has been discharged the IRS can go against you and can claim over your assets of bankruptcy. But during the course of bankruptcy the IRS have no right to take action against you.
This article can help you to understand about bankruptcy and tax.