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Authored By: California FTB

Link: www.ftb.ca.gov

Information

File for bankruptcy

Filing for bankruptcy may relieve you from some (but not all) of your tax debt.

Step 1. Consider other options

Before you file for bankruptcy, consider these other options:

Individuals and businesses

Individuals only

Tax debt relief for spouse

Businesses only

To avoid the hassle and cost of bankruptcy, you might want to ask your attorney about:

General assignment for the benefit of creditors: With the help of a third party, your assets are liquidated to pay your creditors.
State court receivership: A state court appoints a receiver to review and manage your business.

Step 2. Prepare to file for bankruptcy

If you decide to file for bankruptcy and you want to include your tax debt, you should:

Get your tax account information (tax debt, tax return filing status, pre-bankruptcy letter)

Online

Log into MyFTB

Phone

(916) 845-4750
If you’re a representative: Have your client fill out and fax us this form so we can release their information to you.
Form: Authorization for One-Time Release of Confidential Tax Information (FTB 3518)

Fax

(916) 845-9799
File missing tax returns: You should file any missing tax returns before you file for bankruptcy.

Step 3. File for bankruptcy

Provide your tax account and debt information to your bankruptcy representative to help accurately list your tax debt in your bankruptcy forms.

After you file for bankruptcy

Now that you have filed for bankruptcy, the Bankruptcy Court will determine how much your tax debt is reduced (if any). There are still some steps you need to complete.

Notify us about your bankruptcy to stop collections

Let us know once you have successfully filed for bankruptcy. Once we know you filed for bankruptcy, we will stop collections on your tax debt (liens, wage garnishments, or seizures).

We will not stop collections just because you hired an attorney. You need to file for bankruptcy through the courts.

Provide us with your bankruptcy case number or a copy of your petition.

Phone

(916) 845-4750

Fax

(916) 845-9799

Mail

Personal Bankruptcy: Franchise Tax Board
Personal Bankruptcy MS A340
PO Box 2952
Sacramento CA 95812-2952
Business Bankruptcy: Franchise Tax Board
Business Entity Bankruptcy MS A345
PO Box 2952
Sacramento CA 95812-2952

Tax return filing requirements

Although you’ve filed for bankruptcy, you still have to file your tax returns.

Personal: You are still required to file personal income tax returns after filing for bankruptcy. Your bankruptcy representative may also be required to file estate fiduciary tax returns.
Business: The business is still required to file tax returns after filing for bankruptcy. If the court appoints a trustee, the trustee will file the required tax returns.

Letters from us

We may send you letters at least once a year while you’re in bankruptcy. Our letters will summarize your current tax debt, but this is not an attempt to collect during your bankruptcy.

Visit Letters for more information.

Continue to pay your tax debt

If you know that some of your tax debt will still be due after bankruptcy, you may make voluntary payments. Benefits to making voluntary payments include:

Reduce ongoing interest
Reduce tax debt owed after bankruptcy
To prevent collections after bankruptcy

Closing of your bankruptcy

Personal

When you receive a discharge from the court or your bankruptcy case is closed:

You’ll receive post-bankruptcy letter (FTB 4783) with your remaining tax debt. Pay in full or contact us to set up a payment plan.
We’ll start collection action (if applicable)
You are still required to continue to file and pay your taxes

Business

When you’re closing your bankruptcy:

Liquidation (Chapter 7)

The court appointed third party (trustee) must:

File a final tax return
Pay the minimum tax for the following tax year, if applicable
Close the bankruptcy within that same year

Reorganization plan (Chapter 11)

Once the plan is confirmed, you must follow the terms of the plan and continue to file and pay your taxes.

Liquidation plan (Chapter 11)

Once the plan is confirmed, you must follow the terms of the plan. Continue to file and pay your taxes. File a final tax return and close the bankruptcy within the same year.

Bankruptcy estate

A bankruptcy estate is created when an individual files a Chapter 7 or Chapter 11 in the bankruptcy court. It is considered a separate taxable entity. Income earned from the individual’s assets during the period of administration of the estate is taxable to the estate. Bankruptcy estates generally have the following basic elements:

Bankruptcy
Administrator of the estate (Trustee for Chapter 7 and Debtor in Possession for Chapter 11)
Income earned from the estate
Property sold during the bankruptcy

A bankruptcy estate has the same requirements, forms, and due dates as estates. Visit Estates and trusts for more information.

Refunds

If you expect a refund, what happens to your refund depends on the refund tax year and when the debt was added.

Refunds and bankruptcy
Refund tax year	Tax year of the debt	What happens
Any year before you filed for bankruptcy	Any year before you filed for bankruptcy	We have the right to take this refund to pay towards this tax debt (as usual)
Any year before you filed for bankruptcy	Any year after you filed for bankruptcy	We will not take this refund to pay this tax debt. It may be considered an asset during bankruptcy.
Any year after you filed for bankruptcy	Any year before or after you filed for bankruptcy	We may not take this refund to pay any tax debt until your bankruptcy case is closed. We may have authority to: Hold this refund Issue this refund to you (or someone authorized to receive it) If you owe for any year after you file for bankruptcy, contact us.

Liens and bankruptcy

If you have real property that had a recorded state tax lien before you filed bankruptcy, that lien may remain on your real property even if the personal liability for the debt is removed. To resolve this issue or receive specific information, contact us.

Examples of real property:

Vacant land
Buildings
Homes

If you disagree with your debt

If you have questions regarding your debt, including bankruptcy disputes, claims issues, or other reasons, contact us. It may be possible to resolve the issues without court intervention.

How to serve us

If you decide to take legal action, you are required to serve us:

Serve us by mail (if allowed): Franchise Tax Board
Chief Counsel
General Counsel Section MS A260
PO Box 1720
Rancho Cordova CA 95741-1720
Serve us in person: 9646 Butterfield Way
Sacramento CA 95827

And fax or mail a copy of the service papers to the bankruptcy unit.

Prompt determination (505(b))

Under Bankruptcy Code 11 U.S.C. 505(b), your bankruptcy representative (trustee or chapter 11 debtor in possession) may request a faster formal review (prompt determination) of any unpaid tax debt of the bankruptcy estate for any tax year during the case.

To submit this request, gather:

A copy of the completed tax return
A cover letter requesting a prompt determination

Mail these items to:

Franchise Tax Board: Bankruptcy Section MS A340
PO Box 2952
Sacramento CA 95812-2952

You may find it helpful to review your tax account (balance, debts).

Online: Log into MyFTB
Phone: (800) 852-5711

Closing (dissolving) a business

If your business is closing (dissolving or liquidating), your business is required to:

File all required tax returns and pay us any outstanding taxes, penalties, and interest
File a final/current tax return with us
File the appropriate forms with the California Secretary of State to formally dissolve

Visit Guide to Dissolve, Surrender, or Cancel a California Business Entity (FTB Pub 1038) for more information.

Contact CA FTB about bankruptcies