tax configuration
I understand that if I file for bankruptcy in say sept, the taxes on my disability income, LTD and CPPD (tax not deducted), will be figured for the year and I would be only responsible for the 3 months after my filing. My question is whether the tax payable is evenly divided over 12 months? Im afraid I will be hit hard as in Jan. I recieved a lump sum of CPP approx $20000 backdated owing. I promptly paid entire amount to reduce my debt with creditors.
Your Q&A section is a great resource and I am trying to read them all.
When you file for bankruptcy the day that you file is considered a “deemed year end” for income tax purposes. What that means is your trustee will prepare a tax return for you that includes the period from January 1 to the date you file. We call this the PRE bankruptcy return. If you owe any money on this return the debt will be included in your bankruptcy. If you are entitled to a refund on this return it will be paid to your trustee for the benefit of your creditors.
For everyone else reading this site, there is a second tax return prepared for the day after you file until December 31. It is called the POST bankruptcy return. This return is handled differently depending on which trustee you see. In our firm, we allow our clients to keep any refund on their POST if they file between Jan 1 and October 31. Most trustee do not. Before you file you should ask your trustee how they will handle this refund (if you’re entitled to one)…