If you're currently in bankruptcy or recently filed for bankruptcy protection, you may still need to file a federal and state tax return. The good news is that bankruptcy usually doesn't change your annual tax filing requirements. However, it can affect how your refund is handled and whether certain income is taxable.
This guide explains what to expect when filing your taxes with us while in bankruptcy.
Do I Still Need to File Taxes if I'm in Bankruptcy?
In most cases, yes. Filing tax returns is still required during bankruptcy unless the court or your bankruptcy trustee specifically tells you otherwise.
Your filing responsibilities depend on the type of bankruptcy you filed.
Chapter 7 Bankruptcy (Liquidation)
Most taxpayers in Chapter 7 bankruptcy continue to file their regular individual income tax return using Form 1040.
In some situations, a separate bankruptcy estate return may be required. This return is filed on Form 1041 and is typically handled by the bankruptcy trustee, not the taxpayer. Our software does not support Form 1041 estate returns.
Chapter 13 Bankruptcy (Reorganization)
If you're in Chapter 13 bankruptcy, you'll generally continue filing your personal federal and state tax returns each year as usual. In fact, staying current on your tax filing obligations is often required for your repayment plan to remain in good standing.
Important Things to Know Before Filing
Determine Who Needs to File
Depending on your situation, one or more returns may be required:
- You (the taxpayer): File your regular tax return using our software.
- Bankruptcy estate (Chapter 7 only): If required, the trustee files the bankruptcy estate return on Form 1041.
Use Your Regular Filing Status
Bankruptcy generally doesn't change your filing status.
Choose the filing status that applies to your personal circumstances, such as:
- Single
- Married Filing Jointly
- Married Filing Separately
- Head of Household
- Qualifying Surviving Spouse
Report All Taxable Income
Being in bankruptcy doesn't change what income must be reported on your return.
Be sure to include all applicable income sources, including:
- Wages reported on Form W-2
- Self-employment income
- Interest and dividends
- Capital gains
- Retirement distributions
- Unemployment compensation
- Other taxable income
Do not leave income off your return solely because you're in bankruptcy.
How Bankruptcy Can Affect Your Tax Refund
One of the most common questions taxpayers have during bankruptcy is what happens to their refund.
Chapter 7 Refunds
In Chapter 7 cases, some or all of your refund may become part of the bankruptcy estate. Your trustee may claim the refund and use it to pay creditors, depending on the timing of your bankruptcy filing and applicable exemption rules.
Chapter 13 Refunds
In Chapter 13 cases, tax refunds are often considered when calculating your repayment plan. Some debtors are required to turn over refunds to the trustee, while others may be allowed to keep all or part of the refund.
Before spending a refund, check with your bankruptcy trustee or attorney to understand how your case is being handled. The IRS also notes that refunds received during bankruptcy may be delayed or applied to certain outstanding tax obligations.
What If You Receive Form 1099-C for Canceled Debt?
If a debt was forgiven or canceled, you may receive Form 1099-C, Cancellation of Debt.
Normally, canceled debt can be taxable. However, debt discharged through bankruptcy is generally excluded from taxable income.
If you receive Form 1099-C:
- Enter the form information in the program.
- Indicate that the debt was discharged in bankruptcy.
- Complete any required exclusion information so the canceled debt is not improperly taxed.
Depending on your circumstances, additional IRS forms may be required to claim the bankruptcy exclusion.
How to File Your Tax Return
If you're filing a personal return while in bankruptcy, the process is similar to any other tax year.
- Sign in to your account.
- Enter your personal information.
- Add all income documents, including Forms W-2 and 1099.
- Enter Form 1099-C information, if applicable.
- Complete deductions and credits.
- Review your return for accuracy.
- Electronically file your return.
What We Don't Support
Our software supports individual income tax returns, but it does not support:
- Bankruptcy estate income tax returns filed on Form 1041
- Direct communication with bankruptcy trustees
- Bankruptcy case management or legal services
If a bankruptcy estate return must be filed, consult your trustee or a qualified tax professional.
Tips for Filing Taxes During Bankruptcy
To make tax season easier, keep the following records available:
- Bankruptcy petition and filing documents
- Court orders
- Trustee correspondence
- Income documents such as Forms W-2 and 1099
- Prior-year tax returns
It's also a good idea to discuss potential refunds with your trustee before filing so there are no surprises.
Finally, remember that bankruptcy generally does not eliminate your responsibility to file tax returns on time. Debtors in Chapters 7, 11, 12, and 13 must continue meeting applicable tax filing requirements during their bankruptcy case.