What happens with taxes during bankruptcy filing? Any pitfalls I should know?

So I'm in a pretty tough spot financially right now and thinking about filing for bankruptcy. My debts have gotten completely out of control after some medical issues and job loss last year. I'm worried about what happens with my tax situation though. Do I still have to file taxes during bankruptcy? What about tax debts - are those even dischargeable? I've heard different things from friends. I'm particularly concerned about my 2024 tax return since I'll be filing early next year. I had some 1099 work and didn't make quarterly payments (I know, stupid mistake). Will the bankruptcy trustee take my refund if I get one? Or if I owe, does that just get rolled into the bankruptcy? I'm looking at Chapter 7 most likely if that makes any difference. Any advice from people who've been through this would be really helpful. I'm trying to understand all the implications before I meet with a bankruptcy attorney next month.

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22 comments

Tristan Carpenter

•8M

Yes, you still have to file your taxes during bankruptcy - that obligation doesn't stop. Here's what you need to know: Regarding tax debts: Some can be discharged in bankruptcy and some can't. Generally, income tax debts can be discharged if they meet what's called the "3-2-240 rule": the taxes are from a return due at least 3 years ago, you filed the return at least 2 years ago, and the tax was assessed at least 240 days ago. Recent tax debts typically can't be discharged. For your upcoming tax return: The bankruptcy trustee will likely consider your tax refund as an asset in your bankruptcy estate, which means they could take it to pay creditors. Many people time their bankruptcy filing to avoid losing their refund. For the 1099 work where you didn't make quarterly payments: You'll still owe those taxes. If they're recent (which they sound like they are), they probably won't be discharged in bankruptcy. Chapter 7 vs. Chapter 13 makes a difference here - Chapter 13 gives you more options for dealing with tax debts through your repayment plan.

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Tristan Carpenter

•8M

Timing your bankruptcy to receive and spend your tax refund before filing could potentially be viewed as fraud if it appears you're trying to hide assets. The court looks back at your financial transactions, and anything unusual can be questioned. It's better to discuss timing strategies with your bankruptcy attorney rather than attempting to game the system. If the IRS audits you during bankruptcy, the bankruptcy proceeding doesn't stop the audit. You'll need to comply with the audit requirements just as you normally would. If the audit results in additional tax liability, how that's handled depends on when the taxes were due and whether they qualify for discharge under the 3-2-240 rule I mentioned.

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Grant Vikers

•8M

I was drowning in debt last year and worried sick about my tax situation during bankruptcy. I found this AI tool called taxr.ai that really helped me understand my specific situation. It analyzed my tax transcripts and bankruptcy documents and showed me exactly which of my tax debts could be discharged and which couldn't based on that 3-2-240 rule the previous commenter mentioned. I uploaded my documents at https://taxr.ai and it gave me a personalized report that I took to my bankruptcy attorney. He was actually impressed with how thorough it was about my tax discharge eligibility. The tool helped me realize I needed to wait a few more months to file to maximize the tax debts that could be discharged.

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Grant Vikers

•8M

The tool was extremely accurate for my situation - it correctly identified which of my tax years met the discharge requirements and which didn't. The analysis matched what my attorney later confirmed. For self-employment taxes specifically, it does explain which portions might be dischargeable. In my case, I had some 1099 income from 2021, and it clearly showed which parts qualified based on when I filed and when the IRS assessed the taxes. I'm not promoting anything - just sharing what helped me during a really stressful time. I don't remember the exact cost, but it was way less than what I would have paid my attorney for the same analysis. What I appreciated most was getting clear information before my first attorney meeting so I could ask better questions.

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Giovanni Martello

•8M

Update: I tried that taxr.ai tool mentioned above and it was actually really helpful for my situation. I was worried about my 2022-2023 tax debts, and the report showed me exactly which tax periods might qualify for discharge later if I waited to file bankruptcy. The document analyzer broke down each tax year and explained why certain taxes weren't dischargeable yet (too recent). It also showed me how Chapter 13 might be better for my situation than Chapter 7 since I could include the non-dischargeable taxes in my payment plan. I printed the report and brought it to my free bankruptcy consultation. My attorney said it saved us at least an hour of billable time because it had already organized all my tax discharge information correctly. Definitely helped me understand my options better.

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Levi Parker

•8M

If you're dealing with tax issues during bankruptcy, you'll probably need to talk to the IRS at some point. I tried calling them for WEEKS about my tax situation before filing bankruptcy and could never get through. It was infuriating. A friend recommended Claimyr (https://claimyr.com) - it's a service that basically waits on hold with the IRS for you and calls you when an actual human picks up. I was super skeptical but desperate, so I checked out their demo video (https://youtu.be/_kiP6q8DX5c) and decided to try it. No joke, I got through to an IRS agent in about 45 minutes when I had been trying unsuccessfully for days. I was able to get a transcript of my account that showed exactly when my taxes were assessed, which was crucial for determining discharge eligibility in my bankruptcy.

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Levi Parker

•8M

They don't get through faster than normal - they just do the waiting for you. Their system calls the IRS and navigates the phone tree, then waits on hold. When an actual IRS agent picks up, you get a call so you can talk directly to the agent. It saves you from having to sit by your phone for hours. I was definitely skeptical too, but it worked exactly as advertised. I didn't have to waste half my day listening to hold music - I just got a call when an agent was ready to talk. For me, it was worth it because I needed specific account information for my bankruptcy filing, and I couldn't get through on my own after multiple attempts.

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Hunter Hampton

•8M

Well, I need to eat my words. After my skeptical comment above, I decided to try that Claimyr service myself since I've been trying to reach the IRS about my tax transcript for my bankruptcy filing. I've spent literally HOURS on hold over the past three weeks with no luck. With Claimyr, I had an IRS agent on the phone within 90 minutes. I didn't have to sit there listening to their awful hold music - I just got a call when they found an agent. The agent was able to send me my wage and income transcript which showed exactly when all my tax assessments were made. This information was crucial for my bankruptcy filing because it showed which tax years met that 240-day rule the expert mentioned above. My attorney said this saved me a ton of hassle trying to get these documents myself.

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Sofia Peña

•8M

One thing nobody's mentioned is that bankruptcy's automatic stay stops most IRS collection activities, but doesn't stop them from offsetting your refund against prior year tax debts. This happened to me - I filed Chapter 7 in January 2024, then filed my 2023 taxes in February expecting a refund of around $3,200. The IRS kept the entire refund to offset my 2021 tax debt, even though I was in bankruptcy. My attorney said this was completely legal because it's considered a "setoff" rather than a collection action. Just something to be aware of when timing your bankruptcy filing.

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Sofia Peña

•8M

Good question! If the taxes meet the 3-2-240 rule and are ultimately discharged in your bankruptcy, the IRS generally shouldn't offset your refund against those specific dischargeable taxes once the discharge is granted. However, during the bankruptcy proceeding itself (before discharge), they may still attempt to offset. This is why timing matters so much. In my situation, the offset happened while my case was open but before discharge. My attorney explained that if I had received and spent my refund before filing, or if I had waited until after discharge to file my tax return, the outcome might have been different.

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Brandon Parker

•8M

Something to consider that no one has mentioned - if you're expecting to have significant income or asset gains shortly after bankruptcy (like an inheritance, insurance settlement, or work bonus), talk to your attorney about timing. My cousin filed Chapter 7, then got a $30k work bonus three months later that he had to surrender to the trustee because his case was still open. For taxes specifically, if you're expecting a large tax refund from a pending amended return or audit reconsideration, that could be considered an asset too.

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Brandon Parker

•8M

My cousin had to surrender the entire bonus because his Chapter 7 case was still open when he received it. The timing was particularly unfortunate - his discharge came just two weeks after the bonus was paid. Had he received it after the discharge, he would have been able to keep it. In Chapter 7, any assets or income you receive before your case closes can be claimed by the trustee. Chapter 13 works differently since you're on a payment plan, but unexpected income can sometimes lead to a modification of your plan payments. Definitely discuss any potential future income with your attorney to plan accordingly.

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