Bankruptcy and Income Taxes – What You Need to Know
When filing for personal bankruptcy income tax debts are discharged the same as any other unsecured debt, such as credit cards and personal loans.
Your trustee will also prepare your income tax return for the year of bankruptcy and will split the return into two portions, pre-bankruptcy and post-bankruptcy.
The pre-bankruptcy tax return will cover from January 1 of the year of bankruptcy up to the date of bankruptcy. Any income tax refund for this period will be deposited to your bankruptcy estate for the benefit of your unsecured creditors. If there is an amount owing it will be included in your bankruptcy so you will not have to pay it.
The post-bankruptcy return covers the period from the day after you filed for bankruptcy to the end of the year. If there is a refund it will be deposited to your bankruptcy estate for the benefit of your unsecured creditors. If there is an amount owing you will be responsible for payment as it’s a debt that was incurred after you went bankrupt.
If you are struggling with income tax debt or have had your wages garnished then you should seek the assistance of a professional.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.