Is Chapter 13 right for you if you’re dealing with tax debt?
At the beginning of a new year, many people take stock of their financial situation and resolve to get things in order. This often includes getting out from under debt that’s weighing them down. For some people, filing for bankruptcy is the best way to do this.
What if some of your debt involves federal tax payments? That’s a common question with another tax season almost upon us. Can tax debt be discharged with a bankruptcy?
Chapter 13 bankruptcy may not be the best way to eliminate your tax debt. One of the eligibility requirements for Chapter 13 is that, according to the IRS, you “filed all required tax returns for tax periods ending within four years of your bankruptcy filing.”
With Chapter 13 bankruptcy, you’ll be put on a repayment plan. That means that you’ll have to continue making payments on your debts while you’re on the plan. Tax debt won’t be discharged. You’ll still be issued tax refunds if you’re due them while you’re in bankruptcy. However, the IRS may use those refunds to pay down your tax debt.
Some people who owe a considerable amount in tax debt opt for Chapter 7 bankruptcy, which allows them to discharge some types of debt. In some cases, they may be able to discharge federal tax debt. There are some requirements, though. For example, a person cannot have engaged in tax fraud or intentional evasion, and the tax debt must be a minimum of three years old.
If you’re considering bankruptcy, an experienced Florida bankruptcy lawyer can explain all of your options. He or she can also help advise you on the best one for you based on your specific circumstances and on the type of debt you have.
Source: FindLaw, “Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy,” accessed Dec. 28, 2015