Written by Craig D. Robins, Esq.
Bankruptcy Questions I’ve Received About Tax Refunds During “Tax Week”
This is the final post of my of “tax week” series of articles this past week in which I addressed every aspect you’ll need to know about filing bankruptcy and protecting tax refunds, together with info on related issues. Links to all posts in this series are at the bottom of the page.
I’ve gotten some very positive feedback on the tax week. Here are some interesting comments and questions that I’ve received:
QUESTION: I’m about to file a Chapter 7 case; I haven’t filed my tax return yet; and I expect a large tax refund which is not totally exempt. Why don’t I just delay filing my tax return until my bankruptcy case is over?
If a trustee thinks that there may be a substantial tax refund, then he will hold the case open until you file the tax return and provide him with a copy. Thus, delaying the filing will only delay the conclusion for your bankruptcy case.
QUESTION: If I anticipate a large tax refund, why don’t I just submit a tax return that contains incorrect information that shows that I owe lots of tax (meaning that I will not get a refund); and then just amend the return after the bankruptcy case is closed and get the tax refund then?
Well this person certainly thought creatively. Very few people artificially fudge the figures on their tax return to pay more tax then they owe.
However, this approach is probably illegal under the federal tax law, as a taxpayer is obligated to provide correct information on a tax return. In addition, should the trustee learn that a debtor intentionally manipulated the figures on the tax return to “beat the system” and deceive the trustee, the debtor would likely be looking at a proceeding seeking to revoke the debtor’s discharge.
Bottom line: be honest and accurate when filing your tax return, just as you should be accurate and candid when providing info on your bankruptcy petition.
QUESTION: I recently filed a Chapter 7 bankruptcy and the trustee insists on seeing my tax return before closing my case. However, it will take foreever before I can do my tax return. Is there anything I can do to expedite having the trustee close my case.
Unfortunately, the answer is “no.” If the trustee thinks there may be a significant non-exempt tax refund, he will keep the case open until he can review the tax return. Your best bet is to file the return as soon as possible.
Quick Links to All Tax Week Blog Posts About Tax Refunds and Bankruptcy:
Thursday: How a Tax Refund Can Mess Up Your Bankruptcy Means Test 
Friday: Tax Refunds in Chapter 13 Bankruptcy Cases 
Informative Article About Eliminating Taxes in Bankruptcy:
Article About Tax Consequences and Bankruptcy: