Do I Have to File My Tax Returns Before I File Bankruptcy?

After working with folks going through financial struggles for nearly 10 years, I’ve come to learn that when people start falling behind on their bills, or when they go through a terrible illness, job loss, or other mentally trying experience, they are often struggling to keep up life’s other requirements. That includes filing taxes. I know, who doesn’t just love preparing and filing taxes every year, right?? But missing tax returns can raise some important issues if you’re filing for either chapter 7 or chapter 13 bankruptcy.

First, if older tax returns – think older than 3 years – have not been filed more than two years before you file bankruptcy, you cannot discharge any tax debt for that year. In fact, we even have a binding court decision which says that if your tax return was filed even a day late – no matter if it’s been on file for two years before filing – you can never discharge the tax debt. Fortunately, since this decision came out, the IRS has even disagreed with this, and treats old tax debt as discharged so long as it meets the “2-year rule” and something we call the “240-day rule.” Unfortunately, the State of Colorado follows the “Mallo rule.” One more reason it’s important to file your taxes on time!

Of course, most folks aren’t thinking about bankruptcy two years before they file, so bankruptcy considerations aren’t likely to play into their tax filing habits. What about filing last year’s tax returns? Or the previous year’s? The short answer to this question is No, you do not have to file your tax returns before you file bankruptcy, BUT you may need to file your returns very shortly after filing for bankruptcy protection, and it may be in your best interest to be current on filing taxes before you file.

If you file for chapter 13 relief, 11 U.S.C. § 1308 requires that you be current on all tax filings for the last 4 years by the day before your creditors meeting is first scheduled – usually 35-40 days after you file bankruptcy. If you are still not current by that date, the trustee can give you another period of a few months to file any missing return, but eventually your case can be dismissed if you don’t comply with the rule.

In either chapter 7 or 13, you are also required to send your case trustee a copy of your last-filed tax returns, even if not for the most recent tax year, no later than 1 week before your creditors meeting. Failure to obey this requirement can result in dismissal of your case, so even if you aren’t current on tax filings, you better have a copy of your last-filed return – preferably before your case is even filed.

You may also want to be current on tax filings so that you know how much you owe the IRS and state, and so that you can budget to pay the last three years’ tax debt in chapter 13, or give them notice of your chapter 7 so they’re sure to receive some payment if your creditors get anything. And of course, you may be making a huge mistake by not filing your tax returns and receiving your refund before filing bankruptcy. So, no, if you need to file a bankruptcy case tomorrow and you’re behind on tax filings, you aren’t legally required to file anything before your bankruptcy, but you probably want to.