The Short Answer
Yes, all prior tax years must be filed and received by the IRS and the North Carolina Department of Revenue before you can file for bankruptcy. This applies even if you've received a filing extension — you still need to file your taxes before your bankruptcy case is submitted. Unfiled returns can cause the trustee to dismiss your case or allow taxing agencies to object to your discharge. Getting your taxes filed first protects your case and ensures your debt amounts are accurate.
You will notice when you are filling out your paperwork that the court asks you for what seems to be a billion pieces of documentation ranging from copies of bills, papers from purchases, income advices and federal and state taxes. These documents are asked for to verify information you are providing is true and accurate.
However, what happens if you haven’t filed your taxes? Can you still go through the bankruptcy process or must your taxes be done beforehand? The answer is you must have all prior tax years filed and received by the IRS and state in order to file the bankruptcy. There are several reasons why taxes are required to be filed and received before filing your bankruptcy.
The Bankruptcy Trustee, Bankruptcy Court and Bankruptcy Administrator Require It
As your attorney, are required to send a copy of your most recent tax year to the bankruptcy Trustee. If they do not get the taxes before the 341 creditor’s meeting then they technically has the right to dismiss your case. When April 15th (or the appropriate deadline depending on the year) hits, the bankruptcy Trustee will expect taxes to be filed as completed. What if you’ve received an extension? Even if you have received an extension, if you are filing bankruptcy you need to file the taxes before filing for bankruptcy. This does not mean you have to pay on taxes owed but they at least need to be filed.
The Bankruptcy Administrator’s office randomly elects cases to audit. They do this to ensure bankruptcy lawyers are performing their duties but also to ensure clients are providing accurate information. It is similar to being audited by a taxing agency. If your case is randomly selected to be audited then we are required to provide those documents.
Taxing Agencies Want to Ensure Taxes Are Completed
In addition to the bankruptcy Trustee and bankruptcy court needing to see evidence of your tax filings – the taxing agencies, the Internal Revenue Service and the North Carolina Department of Revenue, also will receive notice of your bankruptcy filing and want to make sure information you are reporting is accurate. Once they have word that you have filed a bankruptcy they will reassess your prior year’s taxes to make sure they are completed. If they are not, they can object to your discharge until they have been completed. If a creditor, such as a taxing agency, objects to your discharge it means your case will be held open longer. The longer your case is open, the longer it takes to get your financial freedom.
Filing Taxes Allows You to Accurately Budget Repayments
Just like any other debt you have in your bankruptcy – the amount owed for taxes has an impact on your bankruptcy filing. If you have not filed your taxes, and you are filing a Chapter 7 bankruptcy, then you have no way of knowing what you owe, and cannot go ahead and budget a repayment plan going forward. If you file a Chapter 13 bankruptcy, and you have not filed taxes yet, then the IRS or NCDOR is going to estimate what you will owe them and file a Proof of Claim for un-assessed returns. Oftentimes, the taxing agencies file the proof of claim as a worst-case scenario on your taxes, which typically, means the amount is overstated which can cause an increase in your Chapter 13 plan payment. If you file your taxes then the IRS can use the amount of taxes owed to file a more accurate proof of claim, which may increase your chances of success in a Chapter 13 bankruptcy.
The bottom line is, yes you have to file your taxes before filing your bankruptcy. We understand that it’s a pain to have to dig through your paperwork, retrieve the documents, make copies and bring them to us, but the government requires it as part of your bankruptcy documentation.
Key Takeaways
- Your most recent tax return must be provided to the bankruptcy trustee before your 341 Meeting of Creditors, or your case can be dismissed.
- A filing extension does not exempt you from this requirement — taxes must be filed before your bankruptcy petition is submitted, even if payment can wait.
- The IRS and NC Department of Revenue receive notice of your bankruptcy filing and will review prior returns to confirm accuracy and completeness.
- In a Chapter 13 case, unfiled returns cause taxing agencies to estimate what you owe and file an inflated proof of claim, which can significantly raise your monthly plan payment.
- Filing your taxes before bankruptcy ensures your repayment obligations are calculated on accurate figures, not worst-case government estimates.
- The Bankruptcy Administrator's office randomly audits cases, and tax documents must be available to produce on short notice if your case is selected.
Attorney Insight
The mistake I see most often is clients assuming an IRS extension buys them time on the bankruptcy side too — it doesn't. If you're filing a Chapter 13 and your returns aren't in, the IRS and NCDOR will file a proof of claim based on their worst-case estimate of what you owe, and I've seen those inflated figures add real money to a client's monthly plan payment. Getting your taxes filed first, even if you can't pay what you owe right now, keeps control of those numbers in your hands. In NC, the trustees are thorough — Troxler, Hayes, and Overcash all expect tax documents in order well before the 341 meeting, and missing paperwork is one of the fastest ways to put your case at risk.
