Gail DonaldsonThrough the years, I have seen several common pitfalls for clients in Chapter 13 bankruptcy involving tax-related debts.

Failing to File Tax Returns

The Bankruptcy Code requires that you provide the last four years tax returns that you were required to file.  The most common reason I hear from a client on why they did not file the return is that they could not afford to pay the accountant or they could not afford to pay the tax debt owed.  It is so important to file the return timely!!   Even if you cannot pay the taxes owed, you still need to file the return timely and contact the tax agency to work out payment arrangements.  The same would be true with the accountant.  Find out the amount owed for preparing the return and pay it as soon as possible so you can file the return timely.  Of course, if you owe taxes, those can be paid through a Chapter 13 repayment plan so you can achieve a fresh start post-bankruptcy.

Falsely Claiming Dependents

When a dependent is claimed that results in a large tax refund, it’s wonderful to have that large windfall once a year.  The problem is that the Internal Revenue Service or other taxing agency will learn that someone else claimed the same dependent or the dependent themselves filed their own return.  The bottom line is that if the child or relative is not truly your dependent in the “eyes of the law”, do not claim them as a dependent.  I often see new clients in my office when the Internal Revenue Service of other taxing agency sends them a large tax bill.

Claiming Deductions That Can’t Be Proven

Again, make sure you can prove charitable, medical, mileage or other deductions by having the records or documents on hand if they are challenged by the Internal Revenue Service or other taxing agency.

Identity Theft

Identity Theft has become more and more a problem in our web-based world.  If your identity is stolen, you must take immediate steps to report to all of your creditors including the Internal Revenue Service. The Internal Revenue Service has great information on their website in the event your identity has been stolen or compromised.


If you have tax debt, please contact one of our Bond & Botes attorneys to see how Chapter 13 can help get you a fresh start!


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Gail Donaldson
Written by Gail Donaldson

Gail Hughes Donaldson is a Managing Partner of the Bond & Botes Law Offices in Montgomery and Opelika, Alabama. She holds a Bachelor of Science from Auburn University at Montgomery, and a Juris Doctorate from Thomas Goode Jones School of Law. She’s been helping families work through the bankruptcy process since she started with Bond & Botes back in 1993 as a paralegal. Read her full bio here.

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