Unfiled state tax returns in Chapter 7?

[bcohen]

I did not file my state tax returns in 2009 and 2010, due to lack of funds. The total tax due for each of those years was approximately $350, and I believe that approximately $150 was withheld from my pay each year. I did, however file the federal tax returns in those years. I can no longer locate the copies of the federal tax returns from those years, nor the copies of W2's and other documents that I would need if I wanted to file the missing state tax returns.

Now, I am planning to file for Chapter 7 bankruptcy in January of 2013 in order to prevent (or discharge and set aside) a possible judgment by one of my creditors, as well as to zero out my massive delinquent debt load, and (hopefully) allow my credit to improve. Can I still file for bankruptcy, even if I didn't file the state tax return for 2009 and 2010? I did not work in 2011, so no tax returns were filed for that year, state or federal.

Also, when I do file, I probably won't use an attorney, due to lack of funds, and no assets to protect. I will obtain assistance from the Student Legal Services attorney in filling out the necessary documents, etc, however she will not be representing me.

[despritfreya]

You can file the Chapter 7 without filing the State returns however, your Trustee may want copies to make sure you were not entitled to refunds. If so, you will have to get them done sooner rather than later. You can obtain copies of the missing W2's by contacting the IRS.

Des.

[tobee43]

if you used an accountant they keep copies on file. so you may luck out if you did use a someone to do your taxes.

i know hind sight is blind, however, every year after we file i scan a copy of everything into our computer that way i can email copies or just print the out with a touch of a finger. i can't tell you how many times i needed that finger.

[bcohen]

Assuming that I do obtain the necessary documents and file the missing state tax returns (but do not pay the tax and penalties due) will the bankruptcy trustee automatically pay these first out of any non-exempt funds, rather than give the money to my other creditors?

[tobee43]

Assuming that I do obtain the necessary documents and file the missing state tax returns (but do not pay the tax and penalties due) will the bankruptcy trustee automatically pay these first out of any non-exempt funds, rather than give the money to my other creditors?

that's really hard to say. usually they are included on the list and you'd have to really ask you atty how they will distribute or at what level is consider a "priority" which i believe taxes are depending on what type of tax is owed and which chapter you are filing. i do know someone that was in a stay while in a chapter 7 asset case and the trustee distributed nothing towards a 250k back tax bill....which by the time it was all said and done turned into 650k since they didn't stop penalties and interest!! now that's a nightmare if i ever heard one.

[LadyInTheRed]

The list of priorities in the BK Code is at http://www.law.cornell.edu/uscode/text/11/507

Taxes are eighth, assuming a proof of claim is filed. The Code is not easy to read. It's best to ask your attorney to be certain, as Toobee43 suggests.

[despritfreya]

Assuming there are assets to distribute and assuming you make sure the taxing agency is on the master mailing list and, assuming the taxing agency files a timely proof of claim (if it doesn’t you have a short window in which to file a claim on its behalf), yes, the Trustee will pay the claim with available funds (may or may not be paid in full depending on the amount of those available funds). However, you need to understand that the taxing agency does not have to wait for the Trustee. Once your discharge is entered it is free to collect against you. In addition, the claim that is filed with the court will include interest up to the petition date. The Trustee will not pay post petition interest. Even if the claim is paid in full, you have to pay the post petition interest directly to the taxing agency.

Des.

[bcohen]

Assuming there are assets to distribute and assuming you make sure the taxing agency is on the master mailing list and, assuming the taxing agency files a timely proof of claim (if it doesn’t you have a short window in which to file a claim on its behalf), yes, the Trustee will pay the claim with available funds (may or may not be paid in full depending on the amount of those available funds). However, you need to understand that the taxing agency does not have to wait for the Trustee. Once your discharge is entered it is free to collect against you. In addition, the claim that is filed with the court will include interest up to the petition date. The Trustee will not pay post petition interest. Even if the claim is paid in full, you have to pay the post petition interest directly to the taxing agency.

Des.

We are talking less than $350 of taxes, so with interest and penalties, I am sure it's less than $500 total. When I file, I might have $500 to $1000 in the bank, of which only $150 is exempt ($300 if I have my wife file jointly with me, although none of the debts are in her name). If I can get the taxes paid through the bankruptcy, that would be great. On amounts this small, I do not think that a few days (or weeks) of post-petition interest, which might total a dollar or less is going to be pursued.

[despritfreya]

When I file, I might have $500 to $1000 in the bank, of which only $150 is exempt ($300 if I have my wife file jointly with me, although none of the debts are in her name).

Whoa wait a minute.

1. While you can only claim the $150 bank account exemption, the Trustee cannot ignore the non-filing spouse's exemption to the other $150.

2. Please don’t line the pocket of the trustee by leaving $$ lying around. If you are not in a position to file the tax returns and pay the taxes before filing, use the $$ to your benefit. Go to Costco and fill up that freezer. If you have children, buy them some clothes. If you have a repair to your home or car that needs to be done, do it before filing. Just keep track of what you spend the $$ on.

3. You are in a community property state. Assuming the debts were incurred after you married, your debts are your wife’s debts regardless of who signed on the dotted line. The only exceptions to this would be a debt related to real estate or a personal guarantee of a corporate, or LLC debt. Now, the good news is, even if your wife does not file with you, your discharge protects the community therefore, while a creditor could sue her and get a judgment, so long as you remain married and she does not acquire “sole and separate assets” like an inheritance, the creditor will be unable to collect.

Des.