Who prepares the consumer debtor’s income tax returns?
A bankrupt’s tax year is divided into two parts. If a consumer debtor files an assignment, for example, on May 1, then the tax year is divided into the period between January 1 and April 30 and the second part is the period between May 1 and December 31.
In most cases, the trustee in bankruptcy prepares the income tax returns for both periods of time; that is pre-bankruptcy and post-bankruptcy until the end of the calendar year.
With the pre-bankruptcy return, it is possible in many cases of consumer debtors that there will be a tax refund available. As the consumer debtor has a duty to deliver up all property to the trustee, the tax refund belongs to the estate. The tax refund is technically property of the bankruptcy and the trustee will receive it on the consumer debtor’s behalf and pay it into the estate. Therefore, the consumer debtor may be asked to sign a direction to Canada Customs and Revenue Agency permitting the Agency to pay the trustee although technically the trustee is entitled to the refund as of right.
With the post-bankruptcy return, the trustee may, but need not, prepare the consumer debtor’s bankruptcy return. Once again, if there is a refund, the trustee is entitled to intercept that refund and pay it into the estate for the general distribution to creditors.
Contact Rumanek & Company Ltd. for more information on bankruptcy and debt solutions. Or please fill out the free bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome debt for more than 25 years.