Understanding Tax Debts in Chapter 13 Bankruptcy
Types of Tax Debts in Chapter 13 Bankruptcy
Before understanding tax debts in Chapter 13 bankruptcy, it is essential to know the types of tax debts. There are two kinds of tax debts – priority and non-priority. Priority tax debts are those that have the first right to payment from your assets or income. These include recent income taxes, property taxes, and employee payroll withholding taxes.
On the other hand, non-priority tax debts are those that do not have priority status. These include older income taxes, personal property taxes, and penalties related to tax debt. These debts may be dischargeable in certain circumstances, depending on their age and the timing of your bankruptcy filing.
Treating Tax Debts in Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows individuals with regular income to pay back all or part of their debts over a period of three to five years. Tax debts can be included in your repayment plan under certain circumstances. If you have priority tax debts, they must be paid in full through your Chapter 13 repayment plan. You cannot discharge priority tax debts in bankruptcy.
If you have non-priority tax debts, they may be dischargeable, but only if they meet specific criteria. For example, if the tax debt is at least three years old and you filed your tax returns for those years at least two years before filing for bankruptcy, it may be eligible for discharge. You will need to consult with a bankruptcy attorney to determine if your tax debt is dischargeable.
The Role of the Trustee and IRS in Chapter 13 Bankruptcy
When you file for Chapter 13 bankruptcy, a trustee will be appointed to manage your repayment plan. The trustee will review your financial information, including your tax debts, and determine how much you need to pay each month towards your debts. The IRS will also be notified of your bankruptcy filing and will have the opportunity to file a claim for any taxes you owe.
During your repayment period, you must continue to file your tax returns and make timely payments on your ongoing tax obligations. Failure to do so may jeopardize your bankruptcy case, and the IRS may be able to object to your discharge. It is essential to work closely with your bankruptcy attorney and tax professional to ensure you comply with all necessary requirements and successfully complete your Chapter 13 repayment plan.
Determining Which Taxes Can Be Discharged or Reduced
Determining Eligibility for Tax Discharge or Reduction
When filing for Chapter 13 bankruptcy, it is important to know which taxes can be discharged or reduced. In general, income taxes are eligible for discharge if they meet certain criteria. The most basic requirement is that the tax debt must be at least three years old. Additionally, the tax return must have been filed at least two years prior to filing for bankruptcy.
It is important to note that not all taxes can be discharged in bankruptcy. Taxes that are considered priority debts, such as payroll taxes and trust fund taxes, cannot be discharged through bankruptcy. These types of taxes must be repaid in full as part of the bankruptcy plan.
Reducing Tax Debt in Chapter 13
Even if your tax debt cannot be discharged, Chapter 13 bankruptcy can still help reduce the amount you owe. By developing a repayment plan, you can pay off your tax debt over a longer period of time, which can make the payments more manageable. Additionally, penalties and interest may be frozen or reduced during the course of the repayment plan, which can result in significant savings.
Making Arrangements for Payment of Non-Dischargeable Taxes
Request a Payment Plan with the IRS
If you owe non-dischargeable taxes and you are unable to pay them off in full, you may be able to request a payment plan with the Internal Revenue Service (IRS). A payment plan allows you to make monthly payments on your tax debt over a period of time. However, it is important to note that the IRS may charge interest and penalties on your tax debt while you are on a payment plan.
Offer in Compromise
Another option for dealing with non-dischargeable taxes is to consider an offer in compromise (OIC). An OIC is an agreement between you and the IRS where you settle your tax debt for less than the full amount owed. To be eligible for an OIC, you must demonstrate to the IRS that you are unable to pay the full amount owed and that it would cause you economic hardship to do so. The IRS will consider your income, expenses, and assets when determining your eligibility.
Consult with a Tax Professional
Dealing with non-dischargeable taxes can be complex and overwhelming. It may be beneficial to consult with a tax professional who can help you understand your options and guide you through the process. A tax professional can also help you negotiate with the IRS and ensure that you are taking advantage of any available tax breaks or deductions. It is important to work with a reputable tax professional who has experience dealing with tax debts in bankruptcy cases.
Paying Off Tax Debts with Your Chapter 13 Plan
How Chapter 13 Plan Works in Paying Off Tax Debts
One of the benefits of filing for Chapter 13 bankruptcy is that it allows you to create a repayment plan that includes all your debts, including tax debts. When you file for Chapter 13, you present a proposal to the bankruptcy court on how you intend to pay your creditors over a period of three to five years.
Your repayment plan will typically include priority and non-priority debts. Priority debts include tax obligations, and they are given top priority in your repayment plan. Under Chapter 13, you can make affordable payments towards your tax debts while keeping your assets and avoiding any wage garnishment or collection actions by the IRS.
Tax Debt Payment Priority in Chapter 13 Plan
Under Chapter 13 bankruptcy, your tax debts are classified according to their priority status. Priority tax debts are those that cannot be discharged, and they must be paid off in full through your repayment plan. Non-priority taxes, on the other hand, may be eligible for discharge under certain conditions.
Priority tax debts include recent income taxes and payroll taxes, while non-priority taxes include older income taxes, property taxes, and business-related taxes. Your bankruptcy attorney can help you determine which taxes are priority and which ones aren’t.
Chapter 13 Plan and Tax Debt Relief
A Chapter 13 repayment plan can give you the relief you need when dealing with tax debts. The plan allows you to pay off your taxes over a period of three to five years, reducing the burden of having to pay off large sums of money at once. The repayment plan also allows you to keep your assets, such as your home and car, as long as you stay current on your payments.
Additionally, any interest and penalties on your tax debts may be halted under Chapter 13, reducing the total amount you owe. Once you complete your repayment plan, any remaining tax debts may be discharged, and the IRS will not be able to collect any more on those debts.
In summary, filing for Chapter 13 can be an effective way to pay off your tax debts while keeping your assets and avoiding any wage garnishment or collection actions by the IRS. It’s essential to work with an experienced bankruptcy attorney who can help you navigate the bankruptcy process and ensure that you understand your rights and options.
Consulting with a Tax and Bankruptcy Attorney
Why Consulting with a Tax and Bankruptcy Attorney is Crucial
Dealing with tax debts while in Chapter 13 bankruptcy can be overwhelming, especially if you don’t have much knowledge about the legal system. That’s why consulting with an experienced tax and bankruptcy attorney is crucial. They can provide you with valuable insights and legal advice that can help you navigate the complicated tax and bankruptcy laws.
The Benefits of Consulting with a Tax and Bankruptcy Attorney
When you consult with a tax and bankruptcy attorney, they can assess your financial situation and help you understand how your Chapter 13 plan affects your tax debts. They can also help you determine if you qualify for a discharge of certain tax debts under the bankruptcy code. Additionally, they can represent you in negotiations with the IRS and help you come up with a payment plan that works for you.
How to Find the Right Tax and Bankruptcy Attorney
Finding the right tax and bankruptcy attorney can be a daunting task, but it’s important to find someone who is experienced and knowledgeable in both areas of law. You can start by asking for recommendations from friends or family members who have gone through a similar situation. You can also search for local attorneys online or through legal directories. Once you’ve found several potential candidates, schedule consultations to discuss your case and determine if they are the right fit for you.