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Can You File Bankruptcy If You Owe Back Taxes

What Are Some Other Solutions For Tax Debt

Can I File Bankruptcy on Back Taxes?

If unpaid tax debt has you considering bankruptcy, you may want to explore other solutions first especially in light of the complex rules for bankruptcy and taxes.

These alternatives could include entering into an installment agreement with the IRS, making a deal with the IRS to delay collection efforts, or entering into an offer in compromise. An offer in compromise is an agreement between you and the IRS that allows you to pay a reduced amount.

There are pros and cons to each of these approaches. For example, youll need to pay a user fee for an installment agreement and will owe fees, interest and possible penalties. And the IRS wont always accept an offer in compromise.

Still, because these solutions address only your tax debt and dont affect other areas of your finances as much as bankruptcy does, they could be worth considering.

You Will Be Discharged From Bankruptcy

A discharge releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts that are excluded by law. These include alimony and child support payments, student loans , court-ordered fines or penalties, and debts arising from fraud.

The timing of your discharge depends on a number of factors, including whether this is your first bankruptcy, and whether you are required to make surplus income payments.

Timing of your discharge from bankruptcy

If this is your first bankruptcy and you are not required to make surplus income payments , you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.

Your discharge from bankruptcy will happen automatically if

  • the discharge is not opposed by the LIT, a creditor or the Office of the Superintendent of Bankruptcy
  • you have attended the mandatory financial counselling sessions and
  • this is your first or second bankruptcy.

To ensure that a greater percentage of debts is repaid to creditors, the following standards set out when an automatic discharge will occur.

Timing of your discharge from bankruptcy , First Bankruptcy

First bankruptcy
Surplus income is greater than $200 per month36 months after filing

Discharge hearing

Hayward Parker & Oleary Serves Clients In Middletown Newburgh And The Surrounding Area

Bankruptcy, in several instances, can be an effective way of dealing with past-due federal and state income tax debt.

In a Chapter 7 or Chapter 13 bankruptcy, income tax obligations are dischargeable if the tax return for the year in question was filed and:

The 3 Year Rule: The tax return was due more than 3 years prior to the bankruptcy filing. If the debtor obtained an extension, the due date would be the extension deadline.

The 2 Year Rule: For a late filed return , if the delinquent return was actually filed more than 2 years prior to the bankruptcy filing.

The 240 Day Rule: If there has been an assessment by a taxing authority, it was made more than 240 days prior to the bankruptcy filing.

The debtor did not file a fraudulent return or willfully attempt to evade paying taxes.

Example #1 Debtor timely filed their 2003 tax return . There have been no recent assessments by the government and the return was not fraudulent. The taxes still owed from the 2003 return are dischargeable if the bankruptcy is filed after April 15, 2007 .

Example #2 Debtor files their 2001 tax return late, on October 31, 2005. There have been no recent assessments, and the return was not fraudulent. The taxes still owed from the late filed return are dischargeable if the bankruptcy is filed after October 31, 2007 .

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Will Bankruptcy Wipe Away My Unpaid Property Taxes

A reader sent in the following question about bankruptcy and property taxes. Please note that the advice that follows is presented for informational purposes only and is not intended as legal advice. Consult with a qualified lawyer for advice specific to your situation.

I owe several years back taxes on my home. If I file bankruptcy will it help with these taxes?

First of all, my empathy to anyone out there considering bankruptcy. It’s a powerful tool and absolutely the right choice for some folks in difficult situations, but reaching the point of researching bankruptcy usually means that things have been challenging, and likely for a long time. Bankruptcy is a long, complicated process. Its there to help you hit the reset button, and while it can remove a majority of your debts, it doesnt absolve you of all of your debt obligations.

What Happens If I Have Tax Debt That Cant Be Erased Yet

What To Do When You Owe Back Taxes [INFOGRAPHIC]

Plenty of taxpayers are in this boat, and they all have several legal options. An attorney can advise you on the best course of action, but ultimately, the decision is yours.

Pay in installments. Some people talk to the IRS about a payment plan. The IRS usually backs off once the taxpayer starts an installment agreement. After all, the IRS just wants the money. It doesn’t really want to garnish your wages. Keep in mind that installment agreements are only a good idea if you have the money. If thatâs not the case, you need another option.

Participate in the Offer in Compromise program. The IRS has many programs to help taxpayers pay their tax debt when they have little or no money. The main example is the Offer in Compromise program where taxpayers pay what they can, and the IRS forgives the rest. This program can be extremely complex, and few people qualify. Also, if the taxpayer has any assets whatsoever the IRS will force the taxpayer to sell them. Finally, while the taxpayer negotiates, the IRSâs harassing collections techniques continue.

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Tax Returns And Chapter 13 Bankruptcy

You must be up to date on your tax returns before you file a Chapter 13 case, but the rules allow you a little wiggle room. You’ll provide copies of the returns for the previous four tax years to the Chapter 13 trustee before the 341 meeting of creditors . If you’re not required to file a return, your trustee might ask for a letter, an affidavit, or a certification explaining why. Sometimes local courts will impose additional rules for documents in their districts.

If you owe the IRS a return but don’t file it before your 341 meeting of creditors, things can happen to derail your case.

  • A motion. The trustee will file a motion giving you a very brief period to provide your returns. If you miss the deadline, the court can automatically dismiss your case, leaving you no chance to plead your case to the judge.
  • A substitute return. The IRS might file a “best estimate” claim based on your past income. The problem? IRS estimates are almost always higher than what you would owe after you file a proper return.

Can You Afford Tax Installment Payments

Your next step is to determine if you can afford to repay your past taxes on your own and if so, to arrange a tax repayment plan. CRA will make payment arrangements if you can repay your total taxes within one year. If youve been working with a CRA collection officer, be honest with them about your situation. Propose a tax installment plan that is both fair and affordable.

If you owe substantial penalties & interest, but can afford to repay the underlying tax debt, you can work with a tax lawyer to negotiate a reduction in penalties and interest. However, CRA will not negotiate a private tax settlement either directly with the tax payer or through a tax lawyer in Canada that does not see the total taxes owing paid in full.

CRA may request faster payment. You can consider taking out a loan to pay CRA, however, this will depend on your credit capacity and credit score.

Once you have a deal you can make your payments online but be sure you make all agreed upon payments in full and on time.

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How To Discharge Income Tax Debt In Chapter 7 Bankruptcy

Even though discharging an income tax debt is difficult, if a tax debt is sufficiently old enough, it can get wiped out if you satisfy all of the following requirements:

  • The tax return for the debt you wish to discharge was due at least three years before your bankruptcy filing date .
  • You filed a tax return for the debt at least two years before your bankruptcy filing date .
  • The tax debt has not yet been assessed by the IRS or was assessed at least 240 days before you filed for bankruptcy .
  • You didn’t file a fraudulent tax return or otherwise engage in willful tax fraud or evasion.

If you have an older tax debt you think you might be able to get rid of soon, check with a bankruptcy lawyer. It might make sense to delay filing your case until you satisfy all of the time limit requirements above.

Let Our Experienced Bankruptcy Attorneys Help You

Should You File Bankruptcy if You are Owed a Tax Refund

As with any legal decision, the decision to file for bankruptcy should be done with the legal guidance of an attorney that you trust.

Always seek professional legal advice as you explore information about how child support may affect your bankruptcy case.

The attorneys at Parker & DuFresne are here to guide you. Contact us today. We will even help educate you and put you on the right track to rebuilding your credit after the bankruptcy is final.

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Effect Of Chapter 13 On Bankruptcy

In a Chapter 13 bankruptcy case, you will have to repay taxes, but how much you repay depends on the classification of the tax debt as either a priority claim or a non-priority unsecured claim. Priority tax debts include recent property taxes, taxes that you are required to collect or withhold , employment taxes, excise taxes, and non-punitive tax penalties. Priority tax debts must be paid in full, but most bankruptcy filers only pay a portion of non-priority unsecured claims, which may include some tax debts. Once the bankruptcy court approves your debt payment plan, the IRS cannot object to your payment plan. This means you can repay priority tax debts at an interest rate of 0%, which is usually more favorable than the deals you can strike directly with the IRS.

Non-priority unsecured claims must be paid only after priority and secured claims are fully paid. In most cases, you only pay a percentage of the unsecured debt, and this percentage is calculated by looking at the value of your nonexempt assets. A tax debt is non-priority and unsecured if it is income tax that meets the five conditions described above.

The Law Office Of Seth Kretzer Can Help You Handle Debt During Bankruptcy

When you are trying to figure out how to issues related to your IRS tax debts, you will need a lawyer with specific experience on bankruptcy in Texas and who has the right knowledge and resources to help you.

Contact us online today to schedule a free consultation and discuss the details surrounding your tax debt and bankruptcy case.

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Does Bankruptcy Clear Irs Debt Or Remove Tax Liens

Does bankruptcy stop tax debt? Well, according to the IRSs own website , you can free yourself from the burden of past-due federal tax debt you cant pay by declaring bankruptcy.

Bankruptcy under Chapter 7 or Chapter 13 of the U.S. Code is available for individuals who have experienced extreme financial hardship, whether from a loss of job, serious injury, illness or other radical change in their lives. In any event, if your income no longer matches your expenses, and subject to certain other qualifying criteria, bankruptcy may be a solid option to get a fresh start. Like most other debts , bankruptcy may provide an escape hatch for the challenges you are facing from unpaid taxes.

The Law Offices of Kretzer and Volberding P.C. have reputable bankruptcy attorneys in Houston that can help you with the process.

What Can You Do If Cra Is Taking Your Cpp Pension For Taxes Owing

What do you do if you owe taxes but cant pay the bill ...

If you owe back taxes and CRA is taking your pension, you have a number of options.

First, you can contact CRA and work out a re-payment plan. If you have other assets that you can sell to raise cash, you may be able to pay your taxes with that money, at which point CRA will stop taking your pension. You may also be able to negotiate a monthly payment plan to free up some of your pension.

If you cant make a plan directly with Canada Revenue Agency, you could try to get a debt consolidation loan you borrow from a bank, and use the money to repay CRA. If you pay your taxes in full, CRA will release the flag on your pension payments.

If you dont qualify for a loan, which is often the case once you retire because your income has dropped, your next option is a consumer proposal. In a consumer proposal a settlement is reached with all of your creditors, including CRA. In many cases you may end up paying less than the full amount owing. If your largest debt is taxes, CRA must agree to your proposal, so a consumer proposal is not always an option where tax debts are involved.

If a consumer proposal isnt possible, your final option for dealing with tax debt is personal bankruptcy. Upon your discharge from bankruptcy in Canada your tax debts are discharged.

Finally, my thanks to Mr. Chevreau and the Finanicial Post for bringing this issue, and possible solutions, to the attention of senior Canadians.

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How To Beat The Irs: Dischargeability Of Taxes In Bankruptcy

How to Beat the IRS: Dischargeability of Taxes in Bankruptcy

With a few exceptions, the Bankruptcy Code adheres to the age-old rule that in life, only death and taxes are certain. It isnt so easy to beat the IRS because the Bankruptcy Code significantly limits a debtors ability to discharge taxes in bankruptcy. A bankruptcy professional has to have an intimate understanding of the Bankruptcy Code in order to know when you can beat the IRS and when you cant. Your starting point should be an understanding as to when a discharge of a tax is permitted.

Beating the IRS in bankruptcy court can sometimes feel like asking the San Diego Padres to beat the New York Yankees. The IRS has very low hurdles to clear in order to make a tax debt stick around. First, the IRS must show that the tax is of the kind that cant be discharged. The type of tax, the date the tax was assessed, the date it was due, whether it is a tax or penalty and other factors are all relevant. Second, the IRS must prove this only by a preponderance of the evidence, which is lawyer talk for maybe Im right, and maybe Im wrong. The IRS must also demonstrate that the claim is for either a tax or tax penalty. The Bankruptcy Code does not define what is a tax and just because Congress or a local legislature called it a tax does not necessarily mean it is a tax.

I. Priority and Gap Period Taxes: The Wait Three Years After Filing the Return or 240 Days After Being Assessed Rule.

Discharging Tax Debt With Chapter 7 Bankruptcy

Meet the requirements listed above and you may discharge your income tax debts by filing for Chapter 7 bankruptcy.

If you qualify for Chapter 7 bankruptcy, you may eliminate unsecured nonpriority debts such as:

  • Get expert advice and a guiding hand
  • Heal your financial wounds
  • Restore a sound financial future
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    Does Bankruptcy Clear Tax Debt

    Filing for bankruptcy can clear tax debt depending on the nature and circumstances of your situation. Certain tax obligations may be discharged, forgiven, or managed in a bankruptcy filing. Here are some of the criteria that the IRS will consider when deciding whether or not you or your business is eligible for complete tax forgiveness.

    • The dates you filed your required returns : The IRS is more likely to assist you when they see that you have made an effort to pay your taxes on time.
    • The age of the taxes: The IRS is going to examine the date the returns were last due or meant to be filed.
    • The date of assessment of the taxes.
    • Willfulness: If the IRS has any reason to believe that you willfully attempted to evade payment of the tax by fraud they will immediately dismiss any tax forgiveness through bankruptcy.

    Whether or not the IRS will grant tax bankruptcy discharge is directly tied to the above factors as well as any other miscellaneous factors that pertain to the particular chapter you choose to file under.

    How The Automatic Stay Affects Your Child Support Obligations

    What Happens to Your Income Tax Refund When You File Chapter 13 Bankruptcy?

    The automatic stay, which is in the bankruptcy law, stops all collection efforts against a debtor. The automatic stay generally takes effect immediately upon the filing of your bankruptcy case.

    The automatic stay, which is in the bankruptcy law, stops all collection efforts against a debtor. The automatic stay generally takes effect immediately upon the filing of your bankruptcy case.

    However, this does not stop you from paying your support obligations such as child support, alimony, and other family support obligations. For example, if there was an ongoing garnishment or wage order due to back child support, then filing for Bankruptcy will not affect it since theyre outside the scope of the automatic stay.

    The automatic stay can stop garnishments on your wages and bank accounts allowing your child support obligations.

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