Craft Law Firm, Author at Craft Law Office

Does Chapter 7 Bankruptcy Affect Tax Filings?

Posted on January 13, 2022January 17, 2026 by Craft Law Firm

As we head into 2022, tax filing season is right around the corner. Some consumers may be wondering if filing Chapter 7 Bankruptcy will impact their taxes. Chapter 7 Bankruptcy is one of the quickest ways to relieve yourself of unwanted debt. Filing Chapter 7 can be a life-altering decision if you cannot afford the bills that are piling up, but here are some things you need to know.

If you are owed a significant tax refund, it could factor into your Chapter 7 bankruptcy case. Make sure to let your bankruptcy attorney know that you are supposed to receive a refund, along with the amount. There is a chance that the refund could be protected. You will want to file your return on time. Delaying your filing in an effort to try and hide your refund will not work. Filing income taxes and providing copies to the trustee is a requirement in bankruptcy cases.

The relief you get when filing for bankruptcy could more than make up for the refund you would have received. So, we say don’t sweat over your refund, and in most cases, you are able to keep it. Here are a couple additional bankruptcy benefits.

If a creditor wrote off a debt you owed, you would be issued a 1099-C and that debt would become part of your income, costing you more in taxes. With bankruptcy, the debt is discharged and therefore there is no 1099-C. Also, with less debt. you could contribute more to your retirement accounts such as a 401(k), which lowers your taxable income and the taxes you pay.

If you are considering bankruptcy, but have not filed yet, talk to an attorney first and learn about your options. You could file your taxes, get your refund, and then file for bankruptcy later in the year. You could also file your taxes, get your refund, and then use your refund money to cover attorney fees and costs associated with filing a Chapter 7 bankruptcy case.

We will be writing another blog about Chapter 13 bankruptcy and your tax refund, so check back in a couple of weeks. These two types of bankruptcy chapters handle tax refunds differently. By reading this blog and the next one, knowing your options may help you make decisions in which type of bankruptcy you will file. But no matter what, find an attorney you can trust to oversee your bankruptcy case and be honest with them.

If you would like to talk to Leslie Craft, the experienced bankruptcy attorney at Craft Law Firm, about the benefits and types of North Carolina bankruptcy available to you, contact the office at 252-752-0297. Our consultations are free, and we are happy to meet you at one of our locations in Greenville, Morehead City or Rocky Mount or virtually.

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