I watched dozens of Chapter 13 bankruptcy cases get dismissed in a single afternoon in court recently.
The usual reason was that the debtor had not taken seriously the requirement that all their tax returns be filed within 45 days of the commencement of the case.
Regardless of the debtor’s need for relief from their debts, and despite the additional losses incurred by dismissal, these cases vanished from the court’s docket.
Perhaps I shouldn’t be surprised that folks who didn’t take filing tax returns seriously before they were in bankruptcy continue to blow it off when bankruptcy is filed.
But under the “reformed” bankruptcy code, filing returns is mandatory and dismissal automatic.
This rule has been with us for nearly two decades now. Why is it still reeking havoc?
Debtors relax too soon
Too often, once the bankruptcy case is filed, and the automatic stay is in place, debtors relax.
Getting the information together for preparation of the schedules is taxing and tedious.
When the phone stops ringing with collection calls, and you start sleeping at night, it’s tempting to think your work in bankruptcy is done.
But it isn’t so.
A Chapter 13 debtor, who is going to have a relationship with the Chapter 13 trustee and the bankruptcy judge for three to five years, has to prove that they are up to date on their obligation to file taxes.
And that makes sense, since the trustee can’t evaluate whether the Chapter 13 plan provides enough money to pay the priority taxes unless the returns have been filed.
Remember that returns can be amended later, if you don’t get them 100% correct and complete on the initial filing.
But fail to file and your Chapter 13 is toast.
Bankruptcy is a benefit and to get the benefit, you need to play by the rules on the timeline created by the Bankruptcy Code. Otherwise your bankruptcy case gets dismissed.
Image courtesy of Flickr and Stephen Pierzchala