Chapter 13 bankruptcy is intended to protect financially distressed individuals and sole proprietors so they can repay creditors and get out of debt. But it comes with certain tax obligations. For example, you must file all required returns for tax periods ending within four years of your bankruptcy filing. During the actual bankruptcy process, you must continue to file, or request an extension to file, returns and pay all taxes when they’re due. Those who fail to file or pay tax due during bankruptcy proceedings risk negative outcomes. The judge could dismiss the case, convert it to a liquidating bankruptcy (Chapter 7) or deny the otherwise acceptable Chapter 13 plan.
