Bankruptcy Tips for Tax Time

Bankruptcy Tips for Tax Time

It’s that time of year again. W2s and other forms are rolling in, one by one, through the mail. Whether you’re anticipating a sweet refund or are in danger of adding more liability to your IRS debt, it’s important to take tax time into account when you start thinking about filing for bankruptcy.

As Philadelphia bankruptcy lawyers there are five tips we’d like you to consider before you turn in that tax return—or file your bankruptcy case—this year.

Consider your refund before you file for bankruptcy.

Correctly navigating both your refund and the bankruptcy your planning boils down to a few key issues:

  • The type of bankruptcy you’re filing.
  • The way the money is spent.

If you’re filing a Chapter 13 bankruptcy you may want to get and spend your refund before you file it. Otherwise the refund could end up in your bankruptcy estate, and can be used to pay off creditors.

If you’re filing a Chapter 7 bankruptcy it’s often possible to treat the refund as one of your bankruptcy exemptions, which means you could file for bankruptcy before or after you receive it.

Either way, now is not the time to use your refund on a big screen TV. Make sure you spend it on necessary expenses. Allowable expenses could include your housing and utility payments, food, clothes, medical bills, car payments, car repairs, or payments related to your child’s education. If you’re not sure whether a proposed expense is a good use of your refund, you should consider speaking to your bankruptcy attorney. Keep good records; you want to be able to show where the money went.

Know your tax consequences.

Many of our clients are initially afraid to file for bankruptcy because they think the discharged debt might be counted as income and taxed. Nothing could be further from the truth; forgiven debt may be treated as income, debts discharged through bankruptcy are not.

Take advantage of deductions generated by your bankruptcy case.

Chapter 13 payments are deductible at tax time, offering a nice break to debtors who can certainly use one.

However, don’t try to claim your legal fees. They’re deductible, but you won’t be making or enjoying that deduction directly. Your trustee will deduct them on behalf of the estate.

When in doubt, consult either your attorney, your accountant, or both.

Understand what it takes to discharge federal tax debt.

It is possible to discharge income tax debts in a bankruptcy.  However, we often encourage our clients to take advantage of IRS relief programs first.

Don’t try to do it on your own; a bankruptcy attorney can step in to handle the IRS for you, which means you’re much more likely to get a good outcome. IRS matters are some of the most complex legal matters in the world, and one mistake can create a lot of trouble down the road.

Don’t be afraid to file.

Financial problems can turn anyone a little bit avoidant. Some of our clients just stop filing their taxes. “What’s the point when we can’t even pay?”

That’s a mistake. You can’t include your tax bills in your bankruptcy until two years after the initial filing. No return? No relief.

Keep in mind failing to file your tax returns can trigger a whole host of unpleasant consequences. Don’t conflate the return with the debt: one is paperwork, the other comes out of your bank account. And since failure-to-file penalties do carry financial consequences you can only grow your tax debt by dodging this crucial bit of business.

You can always get help.

If you’re staring at a scary tax situation and need help right away, call the Law Offices of Sadek and Cooper. We offer free consultations, affordable payment plans, and an experienced team that will listen to your concerns and answer all your questions. Your financial fresh start could be just around the corner.



















Lavern Baker
Lavern Baker
17:03 23 Feb 18
You are all super lawyers. Brad and Matt made me feel comfortable. Every one in your office so nice and just made it easy. You’re the best!
peter b
peter b
19:42 21 Feb 18
Thank you, Sadek and Cooper Law offices for your dedication on my behalf. I appreciate Matthew and Patrick and your staff and all that everyone did to support me in this legal matter. You took an embarrassing, sad experience, for me, and turned it into a successful solution without all the emotional pain expected. After dealing with a loan modification company for over eighteen months without going to an attorney first that is the biggest mistake anyone can make. The Modification Companies set out to sell you lies, broken promises and dilute the homeowner's assets with no knowledge of any kind of law. I can't stress enough stay away from Modification companies, as a Military Veteran and family man, protect you or your family best interest. Go directly to Sadek and Copper you will not regret it! This firm moves with Super speed and diligence protecting you and your family's the entire process, even after watching some of these other attorneys in the courtroom appearing to mishandled their clients’ cases before the Trustee. You made it easy and I’m finally getting my financial life back on track! Thank you for your prompt replies to me, your clear information and preparation needed when at the courthouse. I would of course recommend you to others and I am glad you were the one who had my case. Kind genuine law firm who treats you like family. God bless you all and I pray for your continued success in your field of expertise. This firm is Super Lawyers for a reason. They are the best at what they do! Pete
Doug Tinlin
Doug Tinlin
06:55 15 Feb 18
Brad Sadek gave me hope when he decided to handle my mortgage for enclosure defense. I had exactly 10 days left of the 30 days ultimatum given me, but he was able to bargain for an extra 30 days for me to pay up. That duration turned out just right.
Jacinth Jacinth
Jacinth Jacinth
16:07 31 Jan 18
Excellent service. Brad and Matt were outstanding and friendly. They helped me through this. I’ve never met attorneys like these. Thank you!
julie njoku
julie njoku
12:29 24 Jan 18
Brad Sadek is excellent!. He understands and he's fair. You feel like you have someone fighting for you. The staff is friendly, professional, and courteous. These guys are the best at what they do !
Owen Black
Owen Black
20:14 09 Jan 18
Thanks for the great service! I would recommend this firm highly. Throughout the years I have been helped by this firm greatly and very much appreciated.
Steven Rychalsky
Steven Rychalsky
15:30 09 Jan 18
Sadek and Cooper law office was a wonderful experience to work with. Bankruptcy is a difficult experience but they helped with the stress so much and made it easy. I would recommend Sadek and copper too anyone.
Chris Kourelias
Chris Kourelias
19:09 28 Dec 17
Working with both Brad & Matthew was a pleasure. Both gentlemen are extremely knowledgeable and helpful in providing me the right assistance needed to make the correct decision to benefit me in the long run. I would recommend both candidates to anyone looking for assistance with a reputable law firm.
Jennyfer Santana
Jennyfer Santana
21:17 21 Dec 17
Highly Recommended. Matt & Brad assisted with my case. I felt comfortable throughout the entire process. Matt was very understanding, patient, and ensured he answered all my questions! Both great guys and very friendly! It was a pleasure working with Matt and Brad.
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