Can Bankruptcy Eliminate Tax Debt?
October 22, 2022
One of the most frustrating debts a person can have is tax debt. The IRS is often the most merciless collection agency a debtor can face. The IRS can shut down your business, seize assets, garnish wages, and even withhold Social Security benefits, all in an effort to collect money owed to Uncle Sam. In the majority of bankruptcy cases, this debt is not dischargeable. In some cases, however, it may be possible to wipe that tax bill clean. A bankruptcy lawyer can discuss your situation to determine if bankruptcy may be an option for you. The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
A person qualifies for a discharge of tax bills in Chapter 7 or Chapter 13 if:
- The taxes owed are at least three years old.
- You filed returns for those taxes at least two years ago.
- The tax assessment was made 240 days ago or longer.
- You did not engage in fraud or tax evasion.
These are very specific parameters. As such, most people will not qualify for a discharge of tax debt in bankruptcy. But it is still possible, and many times, the timing of a bankruptcy filing can be crucial. A skilled bankruptcy lawyer can answer any questions you may have about tax bills or other debt.
Sometimes a Chapter 13 might be a favorable alternative for tax debts. A Chapter 13 will prevent the government from seizing assets, levying bank accounts, and garnishing wages while allowing you to structure a repayment plan free of future penalties and interest.
In a Chapter 7 case, even collection efforts by the IRS are stopped during the pendency of the case. Even if your tax debts are not dischargeable upon completion of the Chapter 7, most other unsecured debts are. Once these debts are wiped clean, it might make it much easier to pay back the tax debts owed to the government.
At The Bankruptcy Clinic, we understand how difficult overwhelming debt can be. If you are experiencing debt problems, we can discuss your options. If you live near Marion, Mt. Vernon, or Carbondale, we have locations to serve you. For a free consultation to discuss your debt options, contact The Bankruptcy Clinic right away.
Many people in need of bankruptcy relief are hesitant to proceed because they wrongly assume they will lose assets they have acquired. However the vast majority of the Chapter 7 cases we file are no-asset bankruptcies, meaning the debtor can keep all of his or her assets after we apply the proper exemptions. When you have a no-asset bankruptcy, you are able to truly get a fresh start and reestablish your financial life. Our Mt. Vernon bankruptcy lawyers can help you get that fresh start. Even if there may be a particular asset at risk in a Chapter 7 bankruptcy, we can generally prepare you in advance for that, while having a plan of action going forward. For instance, we can generally work with the trustee overseeing your case to arrange either turning over all or part of an asset, or in the alternative, buying back all or part of that asset from the bankruptcy estate. If an asset needs to be protected at all costs, we always have the safer option of steering you into a Chapter 13 bankruptcy where no unencumbered assets are generally at risk. At The Bankruptcy Clinic, an experienced bankruptcy lawyer can sit down to discuss your current situation with you. We help you look at the whole picture and can ensure against you losing valuable assets such as your home or car. By receiving sound advice about your debt options, you can be sure you are choosing the best path for you and your family. Bankruptcy may not the first choice for many people, but when you lay it all out, it may be your best option. If that is the case, it is important you work with an experienced Mt. Vernon bankruptcy lawyer to guide you through the process. Here at the Bankruptcy Clinic, our lawyers work closely with our clients to help them find the right solution for their debt problems. Whether you have a no-asset Chapter 7 bankruptcy or a Chapter 13 bankruptcy, you can trust you are in good hands. Our Mt. Vernon bankruptcy lawyers truly care about you and your family. To learn more about how our attorneys can help with your debt problems, contact the Bankruptcy Clinic today. We also have offices in Marion and Carbondale to serve your needs.
While filing for bankruptcy is not for everyone, in some situation it may be your best option. Some people wait too long. In the process, the pressure mounts and they get themselves deeper and deeper into trouble. In the worst situations, they may lose so much more by not seeking relief from their financial issues. If one of the following situations apply to you, you should consider filing for bankruptcy: If you have fallen behind on mortgage payments or you are facing or in foreclosure. If your personal property like your car is facing repossession. If your wages have been garnished and your bank account has been liquidated. If you feel like you are in over your head with uncontrollable unsecured debts like credit card bills, hospital or doctors’ bills. If one or more of your creditors have turned your account over to a collections agency or person or if you have lawsuits pending or creditors threating to sue you. If you are receiving collection calls at home or work. If you have income taxes you are unable to pay. If you have significant medical bills not covered by insurance. If your total debt, excluding your house, is more than you could pay within five years. Many of these situations indicate your financial situation is out of control and you may need help regaining control. We know no one thinks they will be the one filing for bankruptcy, but in some situations, it may be the smartest move. If you are struggling with your finances, you may want to speak with our experienced Southern Illinois bankruptcy attorneys. Call our office today for your free, initial consultation.
With tax season fast approaching, some filers are about to be hit with a large tax bill. They may be curious if bankruptcy is an option to help them discharge this debt. Unfortunately, tax debt can only be discharged in bankruptcy in very limited circumstances. If you have questions about tax debt and bankruptcy, contact a Southern Illinois bankruptcy lawyer right away to learn your options. In order to discharge a tax debt in Chapter 7, a debtor will need to meet all of the following Requirements: Tax debt is income tax debt; There was no fraud, evasion, or other illegal activity involved in your filing; The tax debt is at least three years old; You have filed a tax return; The tax return was filed at least 2 years ago; At least 240 days have passed since the IRS assessed the tax debt. These requirements mean that only a very small number of debtors can discharge tax debt in Chapter 7. In Chapter 13, a person’s payments will be capped based on their income, but when that repayment is complete the person will still owe the remaining debt to the IRS. While bankruptcy won’t directly help with tax debt for most filers, it still may be a person’s best option. By discharging other bills in Chapter 7, it may free up enough disposable income to allow a person to repay Uncle Sam. The same is true of Chapter 13: capping monthly payments may allow a person to save up money to use to pay back the IRS. Tax debt is a serious problem and bankruptcy may be able to help. At The Bankruptcy Clinic, we can examine your situation to find the right solution for your debt problem. For a free consultation to discuss your debt problem. Contact The Bankruptcy Clinic right away.
In Chapter 13, a debtor is allowed to keep important assets that might otherwise be at risk of being sold in a Chapter 7. However, a debtor in a Chapter 13 is usually required to pay back at least a portion of the debt owed to the unsecured creditors. An obvious question our clients have is: how much will I have to pay back? Unfortunately, there is no quick and easy answer. No two situations are ever the same. Generally, a debtor must pay back to the unsecured creditors the greater of the following two options: 1) the equivalent value of the items that would have otherwise been at risk of being sold in a Chapter 7; or 2) a debtor’s disposable income - the amount of money left over after taking into account those expenses that are necessary for your maintenance and support. In determining a debtor’s disposable income, additional factors come into play. If your income is above the median level for your household size and geographic location, your disposable income is determined by the “Means Test”, an objective tool established by Congress which allows for certain maintenance and support deductions premised on IRS national and local expense standards. If you are above the median level, you will generally be required to enter into a Chapter 13 repayment period for five years. If your income is below the median level for your household size and geographic location, then disposable income is much simpler to determine. We simply look at your household budget to determine those expenses that are necessary for your maintenance and support going forward. As a below median debtor, you will generally be required to enter into a Chapter 13 repayment period for at least three years. Some debts are generally required to be paid in full through a Chapter 13. Typically, this would include priority debts such as child support, alimony, or back taxes incurred in the last three years. Other debts that are generally paid in full include mortgage arrears where one plans on keeping a home. If a person has a second mortgage, it may be possible in some cases to completely strip off the mortgage from the property. Obviously, this can significantly reduce the amounts required to be paid back. Other secured debt payments may be modified or reduced in a Chapter 13. For instance, if you owe more on a car or personal property loan than what the property is worth, we can often do a “cram down” where you pay back the fair value of the collateral rather than the full amount owed. Similarly, we can often lower the payments on secured debts by extending the duration of the repayment period or reducing the interest rate to something more affordable. Obviously, a lot of factors go into determining what will have to be paid back and over what time frame. Our experienced bankruptcy lawyers can discuss your income, your assets, examine your specific debt situation, and help you get a definitive idea of what exactly you will have to pay back and for how long. We will help you develop a repayment plan that allows you to make affordable monthly payments while keeping your valued assets. For a free consultation in Marion, Mt. Vernon, or Carbondale, contact our office right away.
