A chapter 13 bankruptcy is for getting your financial house in order, organizing your debt, and paying back what you can. Naturally, this includes taxes to New Jersey as well as the IRS. This is why I always advise my clients to have all of their tax returns filed before they file the bankruptcy petition.
This is because the bankruptcy code requires that you file all returns no later than the day before your first scheduled meeting with the trustee.
This may seem like a simple requirement, but that is not always the case. In New Jersey’s Camden vicinage, meetings with the trustee are scheduled for a date about thirty (30) days after you file your bankruptcy. Thus if you are looking to file your bankruptcy in January or February, this can be an issue.
When Must You File
Most people think that they have until April 15 to file. But if you filed your bankruptcy on January 10, and your meeting with the trustee is set for February 10, then you really only have until February 9 to file it.
This can be even more of a crunch if you are self employed and need to file a tax return for your business before your individual return!
What Happens If You Don't
The real problem comes in under provisions of the code that allow the trustee, or any interested party like a creditor, to make a motion to dismiss your bankruptcy, or convert it to a chapter 7, if you do not meet that deadline! This is because the IRS and New Jersey cannot file a proof of claim for payment because they will not know if you owe money at all, or if you do, how much.
As a practical matter in New Jersey’s Camden vicinage this does not happen because the trustee also has the option under the code to “hold open that meeting for a reasonable period of time to allow the debtor an additional period of time to file any unfiled returns,” and usually does so. However, all this does is hold up confirmation of your plan.
What You Should Do
The bottom line is that if you need to file a chapter 13 bankruptcy, you should, if at all possible, file your tax returns as part of the preparation process. After all, if you owe taxes, you are going to want to have time to pay it along with all of your other debts and want to have a plan in place to do so. If you are getting a refund, that money could be used to help you pay your attorney’s fees for filing!
If you have any other questions, or would like an analysis of your situation to see if chapter 13 could help you, please call my office at 856-432-4113 or contact me through this site for a free consultation.