Tax Season Mistakes That Could Jeopardize Your Bankruptcy Case

Can Filing Taxes Late Harm My Bankruptcy Case?

Filing taxes late can significantly impact your bankruptcy case. The IRS and bankruptcy trustee may require recent tax returns to assess outstanding liabilities and determine whether tax refunds are non-exempt assets. If returns are unfiled, the trustee may delay your case or even seek to revoke a discharge.

While some may avoid issues if they typically receive small refunds, those who expect larger amounts will face greater scrutiny. Additionally, the IRS can object to a discharge if returns remain unfiled, leading to dismissal or complications.

Delays in filing also make it harder to find an accountant, especially after tax season, potentially stalling bankruptcy proceedings. Regardless of whether you expect to owe taxes, promptly handling your return prevents unnecessary delays and legal risks. By extension, proper tax filing ensures your case is closed and discharged much smoother than it otherwise would be.

How Can Inaccurate Tax Returns Create Issues In Bankruptcy?

Inaccurate tax returns can create issues in bankruptcy, but it largely depends on timing and whether your case is still open. If you amend your tax return while your bankruptcy case is active, any increase in your refund must be reported to the trustee, as it could impact your estate.

However, if your case is already closed, it’s generally not an issue for bankruptcy—it’s more of a concern between you and the IRS. Trustees typically don’t keep cases open just in case of a potential tax return mistake, so if the case has been finalized, any changes to your tax return are usually outside the bankruptcy process. That said if the trustee has left the case open and your refund changes significantly, you may be required to disclose it.

Why Is Withholding Information About Tax Debts A Mistake During Bankruptcy?

Among common tax errors before filing for bankruptcy, withholding information about tax debts is perhaps the most serious. Bankruptcy is a federal process, and failing to disclose tax debts—especially intentionally—can lead to significant legal trouble. Trustees have ways of uncovering financial information, and if they find out you withheld something on purpose, it could jeopardize your case and even result in penalties.

One common mistake people make is delaying filing their tax return, thinking it will keep the trustee from seeing it. However, this often backfires, as trustees can simply keep the case open until the return is filed. Trying to manipulate the process in this way can make things worse and put you in a difficult position. The best approach is to be honest and upfront. There’s rarely a benefit to withholding information, and the risks far outweigh any perceived advantage.

Alec Solomita, founder of Solomita Law, PLLC in Florida, has helped countless Floridians navigate the complexities of bankruptcy while ensuring tax-related issues don’t jeopardize their financial recovery. Handling cases involving late tax filings, IRS disputes, tax refund protections, and more, he provides strategic legal guidance to minimize risks and avoid costly mistakes. His firm understands how crucial tax matters are in bankruptcy and has successfully guided clients through these challenges.

If you’re facing bankruptcy and have concerns about taxes, contact Solomita Law, PLLC, today for the knowledgeable legal support you need.

How Can Unpaid Taxes Delay Or Impact My Bankruptcy Process?

Unpaid taxes can impact your bankruptcy process depending on the type of tax debt and when it was incurred. If the tax debt is from the last three years, it is typically non-dischargeable, meaning you will still owe it after bankruptcy. In this case, the IRS can still pursue collection, and it may affect your ability to get a fresh financial start.

If the tax debt is older, it may be eligible for discharge, but it depends on factors like when the tax return was filed and whether there was any fraud involved. While unpaid taxes don’t necessarily delay the bankruptcy itself, they can complicate the process, especially if the IRS has filed liens or if the trustee needs to determine how the debt should be handled in your case.

What Are The Consequences Of Ignoring IRS Notices During Bankruptcy?

Ignoring IRS notices during your bankruptcy can have serious consequences. The IRS has the power to object to your discharge if you haven’t filed required tax returns or resolved outstanding tax debts. If they file an objection, the court will take it seriously, and you may not be able to eliminate certain debts through bankruptcy.

Additionally, if you haven’t filed your tax returns, the IRS may estimate what you owe, and inflate the amount due. This can make it seem like you have a much larger tax debt than you actually do, causing unnecessary stress and complications.

The bottom line is that if you owe taxes and haven’t filed, you need to take action immediately. Bankruptcy is a financial process, and the IRS plays a major role in it. If you ignore them, they can impose penalties, delay your case, or even prevent you from getting the relief you need.

Guiding Clients Who Spend Tax Returns Or Refunds Before Filing For Bankruptcy

Handling tax refunds before filing for bankruptcy requires careful planning. That money is technically yours, but it’s also considered an asset by the bankruptcy court, so spending it the wrong way can cause problems.

If you use it on necessary expenses—such as medical bills, car repairs, rent, or groceries—you’re usually in the clear. However, spending it on luxury items, repaying family members, or gambling can raise red flags and may lead to the trustee demanding repayment.

I always advise my clients to check with me before spending their refund. If the expense is necessary and justifiable, it’s typically not an issue. But if you’ve already spent your refund on non-essential items before filing, you may have to pay that money back.

It’s important to be upfront about how the funds were used so we can determine the best course of action. The key is to be smart about how you allocate the money—otherwise, you could end up owing more than you planned.

Still Have Questions? Ready To Get Started?

For more information on Common tax errors before filing for bankruptcy, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (407) 255-7458 today.