Expert: Brian V. Lee, Esq. - 2/5/2012

Question
I filed bankruptcy last year (Chapter 7) and my order of discharge was signed by the court.
I had a sole proprietary business.
Do I have anything special I need to do when filing my income tax for last year?
Thanks!

Answer
For debtors filing for bankruptcy under chapter 7 or 11, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer.

The estate in a chapter 7 case is represented by a trustee. The trustee is appointed under the Bankruptcy Code to administer the estate and liquidate any nonexempt assets of the estate. In chapter 11, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee.

If the debtor filed a chapter 7 or 11 case, the debtor must file a Form 1040 for the tax year involved. The bankruptcy trustee files a Form 1041 for the bankruptcy estate. If the debtor is in chapter 11 bankruptcy and remain as the debtor-in-possession, the debtor must file both a Form 1040 and the Form 1041 for the bankruptcy estate (if the estate meets the return filing requirements).

If a husband and wife file a joint bankruptcy petition and their bankruptcy estates are jointly administered, their estates must be treated as two separate entities for tax purposes. Two separate tax returns must be filed (if they separately meet the filing requirements).

I strongly suggest consulting with a tax professional for the tax year following a bankruptcy filing.


Brian V. Lee, Esq.
Virginia Bankruptcy Lawyer