Making the decision to file for bankruptcy can bring up a great deal of questions, concerns and worries. First of all, put aside your worries. It is not the end of the world and life will go on. A qualified bankruptcy attorney can walk you through the process and help you every step of the way. In fact, filing for bankruptcy may vastly improve your quality of life. The harassing phone calls will stop and depending upon the type of bankruptcy, (Chapter 7 or Chapter 13) you may have a fresh start or a reasonable repayment plan to start over! With that being said, there still may be questions about how a bankruptcy will impact your family and your future. One common question is about the Internal Revenue Service and how filing may influence your tax return. Your friends may be telling you that filing for bankruptcy may make an IRS audit more likely. Let’s look at whether this is a myth or fact.
As of right now there is no written or unwritten policy regarding auditing people who have filed for bankruptcy. Approximately one and a half million people file for bankruptcy yearly in the United States. If the IRS targeted citizens who filed bankruptcy they would quickly run out of resources to analyze and process tax returns. The IRS doesn’t have the financial resources or the numbers of accountants to automatically audit everyone who files for bankruptcy. The ultimate goal of a bankruptcy proceeding is to sift through your assets, liabilities, and debts in an effort to move you through bankruptcy and put you on your feet again. This does not mean that you are immune to an audit due to the bankruptcy. In the rare instance when an audit does happen the best defense is to have been absolutely truthful in your bankruptcy petition when first filed. Always be truthful on each document and with the trustee put in charge of your case.