California residents who are seeking Chapter 13 bankruptcy relief have tax considerations to evaluate before filing and during the repayment process. Not every borrower may file for Chapter 13, but many are eligible to as long as they meet specific requirements, have the proper required paperwork, and properly adhere to the filing process. Preparing to file for bankruptcy is often the most important step in the process, but it’s also essential to understand what may come next, including ongoing tax obligations.
Prior tax records
When filing for Chapter 13 bankruptcy, you’ll need to turn over prior tax records. Filers must submit the four years of tax returns that lead up to the bankruptcy filing date.
Ongoing tax payments
Keep tax payments current whether or not they’re included as a creditor in the Chapter 13 petition, and ensure that estimated tax payments are the correct amounts for your specific situation. The IRS will receive notification of all activity associated with the filing if they are listed.
If the IRS is one of the debts in the repayment schedule, it may be because the amount withheld for tax payments was insufficient over the previous years. These filers might have to adjust how much they’re paying for their estimated taxes or their withholding amounts. This often happens with business owners who must file even when they pay their taxes quarterly.
In some cases, failure to maintain tax payments in any bankruptcy repayment plan can lead to dire circumstances. For example, the rules of Chapter 7 bankruptcy may be applied when an agreement cannot be negotiated, including confiscating personal property and selling them to repay creditors. Make sure to adhere to all the stipulations of a Chapter 13 filing from the beginning of the process to the end.