Federal Tax Returns and Chapter 7 Bankruptcy

One of the qualifications for filing Chapter 7 bankruptcy is that income is below a certain threshold. One of the best indicators of income is found in a persons Federal Tax Return. As such, filing tax is a prerequisite for filing bankruptcy. Chapter 7 and Chapter 13 debtors must provide copies of their federal income tax returns (including attachments) for the most recent tax year ending before bankruptcy “and for which a return was filed” to the Chapter 7 or Chapter 13 trustee, as the case may be. [11USC §521(e)]. A copy of those tax returns must be given to the Trustee at least seven (7) days before the first Meeting of Creditors. At the very least the last-filed tax return must be given even if it is not for the current year. Likely, the Trustee will force the debtor to file for the most recent year and provide those returns.

Failure to file and provide Federal Tax Returns can result in dismissal or even conversion to Chapter 13. The debtor's failure to file tax returns with the appropriate taxing authorities (federal, state and local) during the four-year period preceding the petition is ground to dismiss or convert the case to Chapter 7, “whichever is in the best interest of the creditors and the estate.” (11 USC §1307(e); In re Gilbert (BC CD CA 2015) 535 BR 317, 328 - dismissal mandatory where debtor fails to timely file tax return).

So, if you are thinking about filing for Chapter 7 bankruptcy – file your taxes and make sure you have your Federal Tax Return for the most recent year ending prior to filing.