Bankruptcy and Taxes

If you thought death and taxes were bad, wait until you try bankruptcy and taxes. When you file bankruptcy, there is an estate created, which consists of all your property and all your debts at the instant you file. Included in that is taxes that you might later owe for income earned up to the point of filing, and refunds to which you might be entitled for overpayments through withholding as of the same date. A little known provision in the Internal Revenue Code allows you to create two taxable years. One for the part of the year prior to your bankruptcy filing date, which is the portion that is in your estate; and one for the remainder of the year. Whether or not to make this election depends on a number of things. So in addition to talking to a bankruptcy attorney before you file bankruptcy, talk to an accountant or tax attorney as well.