Bankruptcy and Taxes
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Should You File Bankruptcy Before or After Filing Taxes?
Timing your bankruptcy filing around tax season can make a big difference in how your refund, tax debts, and eligibility are treated. Here’s what you need to know:
✅ Filing Bankruptcy After Filing Your Taxes
For most people, it’s a good idea to file your taxes first. Here’s why:
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Trustee Will Want Your Return – In Chapter 7 and Chapter 13 cases, you must provide your most recent tax return to the trustee. Filing first avoids delays.
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You’ll Know if You’re Owed a Refund – If you’re getting a refund, the trustee may take it (or part of it) in a Chapter 7 case unless it is exempt. Knowing the amount lets your lawyer protect as much of it as possible.
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More Accurate Means Test – The bankruptcy “means test” uses your income from the past six months to determine eligibility for Chapter 7. A recent tax return helps show a clear financial picture.
⚠️ When Filing Before Taxes Might Make Sense
Sometimes filing before you file taxes can be strategic:
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Large Tax Debt That Qualifies for Discharge – If your income taxes are old enough (generally due at least 3 years ago, filed at least 2 years ago, and assessed at least 240 days ago), filing bankruptcy could wipe them out.
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Stopping IRS Collections – Bankruptcy’s automatic stay stops garnishments, levies, and collection calls immediately.
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You Owe and Can’t Pay – If you know you’ll owe a large amount you cannot pay, filing bankruptcy first may give you breathing room.
💡 Special Considerations
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Chapter 13 Filers: You must be current on your tax filings for the last four years before your plan can be confirmed. If you are behind, you’ll need to file them first.
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Expected Refunds: If your refund is based on earned income tax credit (EITC) or child tax credit, some or all of it may be fully exempt in your state.
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Timing Is Key: Discuss with your bankruptcy attorney whether delaying a few weeks to file taxes first could protect your refund or make your case stronger.
When to File Bankruptcy – Before or After Filing Taxes
| Consideration | Filing BEFORE Taxes | Filing AFTER Taxes |
|---|---|---|
| Speed of Case | May speed up getting automatic stay protection if IRS or state collections are aggressive. | Filing after taxes avoids delays since trustees require your most recent return. |
| Tax Refunds | Refunds may become part of the bankruptcy estate and could be taken unless exempt. | Knowing the refund amount helps your attorney protect as much as possible with exemptions. |
| Tax Debts | If income taxes meet the 3-year / 2-year / 240-day rules, filing now may discharge them sooner. | Filing later may include newer tax debts, making them potentially dischargeable in the future. |
| Means Test (Chapter 7) | Uses your last six months of income — filing early may help qualify if income is dropping. | Waiting may disqualify you if income is rising. Filing after taxes can provide clearer documentation of income. |
| Chapter 13 Plan Feasibility | Can start plan payments sooner and stop IRS garnishments. | Having tax returns filed is required before confirmation — avoids trustee delays. |
| Stress Level | May offer faster relief from garnishment or levies. | Gives you clarity about refund, liabilities, and total debt picture. |
Key Takeaways
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Most filers benefit from filing taxes first, because it makes bankruptcy smoother and allows planning around refunds.
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But if you are facing active collection (levy, garnishment, lien filing) or you have dischargeable tax debt, filing earlier may provide quicker protection.
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Always discuss timing with a bankruptcy attorney — the decision can save you money and stress.
Tax Issues in Chapter 7 vs. Chapter 13 Bankruptcy
| Issue | Chapter 7 (Liquidation) | Chapter 13 (Repayment Plan) |
|---|---|---|
| Tax Refunds | Refunds for the year prior to filing may be part of the bankruptcy estate. If not fully protected by exemptions, the trustee may take them to pay creditors. | Refunds are usually considered part of disposable income and may have to be turned over to the trustee each year during the plan, unless the court allows the debtor to keep them for necessary expenses. |
| Outstanding Tax Debts | Dischargeable income tax debts (meeting the 3-year, 2-year, 240-day rules) are wiped out at discharge. Non-dischargeable taxes remain due. | Priority taxes must be paid in full through the plan, without penalties, and often without additional interest. This can stop IRS collections and spread payments over 3–5 years. |
| Tax Liens | Liens survive bankruptcy but are limited to the value of property owned as of the filing date. Future wages are protected. | Liens must be addressed through the plan. Payment can be spread out, and lien rights are released once the plan is completed and payments are made. |
| Filing Requirements | Must have most recent tax return filed and provided to trustee before 341 meeting or case can be dismissed. | Must file last 4 years of tax returns before confirmation of the plan. Failure to do so can result in dismissal. |
| Post-Filing Tax Debt | Post-petition tax debt is not part of the case and remains fully collectible. | Post-petition tax debt can sometimes be included if you amend the plan, but usually remains your responsibility. |
| Ability to Pay Past-Due Taxes | No repayment plan – good if you qualify for a discharge, but you may face continued collection for non-dischargeable taxes. | Allows structured repayment of non-dischargeable tax debt over time with court protection from collection efforts. |
Key Takeaways for Clients
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Chapter 7 works well if your tax debts are old enough to be discharged and you don’t have large unprotected refunds.
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Chapter 13 is often the better choice if you owe significant non-dischargeable taxes, since it allows repayment over 3–5 years under court supervision — stopping garnishments and levies.
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Refund planning is critical — consult your attorney about timing your filing to protect as much of your refund as possible.
