Well, tax season is upon us. I am hearing from quite a few folks who have returns ready to file but don’t have the money that they are required to pay in. What I usually say is that in most circumstances it is better to file the return without paying than it is to delay filing. If you file your return without paying, the taxes you owe might be dischargeable in a bankruptcy three years from now; but if you don’t file the return, chances are that the taxes would never be dischargeable in bankruptcy.
Another reason to file is that tax filings are required to be up to date prior to the filing of a Chapter 13 bankruptcy. And for Chapter 7 bankruptcy it is best to have them up to date. It is possible to file a Chapter 7 without having the tax filings all finished, but it is not a good idea. In any bankruptcy case you are required to list all your assets and all your liabilities. A tax refund is an asset, and if you owe taxes that certainly is a liability. Either way, without the taxes done, you don’t know what you have and you can’t provide the full information that is required in the bankruptcy petition.
Some situations may call for something different, but most of the time it’s best to file on time even if you can’t pay on time. The IRS and the Minnesota Department of Revenue are usually fairly easy to work with when it comes to setting up payment plans.
