Can You Declare Bankruptcy On Taxes Owing
The short answer, for most people, is yes you can declare bankruptcy on taxes owing. In fact, 50% of the people that file personal bankruptcy include some form of tax debt. It is usually personal income tax, but also includes HST, source deductions, as well as directors liability for corporate tax debts. This applies to people that file bankruptcy and for people that file a consumer proposal. Canadian bankruptcy law doesnt differentiate between tax debts and other kinds of unsecured debt.
The long answer is still yes, you can declare bankruptcy on taxes owing, with the following restrictions:
Both of these things are quite rare you have to go out of your way and deliberately break the law in order for the Canada Revenue Agency to use these tools to collect your taxes.
There are a couple of other things that you need to be aware of, should you file for bankruptcy and have a tax debt.
Chapter 7 Overview And Tax Debt
As we mentioned, federal income taxes qualify for discharge under Chapter 7 Bankruptcy. If the required criteria are met, the tax debt, all associated penalties and interest will most likely be discharged. If some of the criteria are not met, this only means that the tax debt will need to be paid, and other debts entered into the bankruptcy filing may still be discharged.
Solve Your Income Tax Problems Without Bankruptcy
If your income tax debt does not meet the criteria for discharge, our office offers alternative paths to financial freedom. The Law Offices of Blake Goodman PC offers tax resolution services. As your attorneys, we can negotiate with the IRS on your behalf to achieve the best possible outcome for your situation. To its credit, the IRS offers multiple potential solutions to individuals who owe a significant amount of back taxes.
Tax laws are notoriously complex, as are the laws that govern the bankruptcy process. If you are considering filing for bankruptcy or are in need of tax resolution services, we can help with tax debt relief services.
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Buttax Liens Don’t Go Away
If the IRS has already placed a lien on your property, you’re out of luck. Even if you can discharge an income tax obligation, the discharge only wipes out your liability for the debtthe lien will not go away. So even though the IRS won’t be able to garnish your wages to collect the discharged tax debt, you’ll need to pay off the lien when you sell the property.
Filing Bankruptcy With Unpaid Sales Tax Or Trust Fund Tax Debt
Employers and businesses are required to withhold taxes for their employees as well as to pay sales tax collected on the transfer of goods. These types of taxes are often referred to as trust fund taxes as they are to be held in a separate account by the business until they are disbursed to the taxing authority. In Pennsylvania, unless a claim for unpaid sales or trust fund taxes is compromised by the taxing authority, it must be paid in full and will even survive the bankruptcy discharge. Often times, a debtor with primarily personal consumer debt who also has a business that owes these types of taxes- will file bankruptcy on personal debt and set up a separate repayment plan with the taxing authority outside of the bankruptcy. However, if the debtor is a sole proprietor, the tax debt is also a personal liability and therefore must be addressed as a non-dischargeable priority debt regardless of whether the case is filed under Chapter 7 or Chapter 13 of the Bankruptcy Code. Put more succinctly, absent an agreement with the taxing authority to the contrary, these are debts that must be paid in full regardless of the discharge in bankruptcy or liquidation of the underlying business. It is always advisable that an individual with a business that has tax debts seek legal counsel to determine what options are best in regard to their particular situation.
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Contact Moran Law To Speak With A Bankruptcy Lawyer Free Of Charge
Speak with a Michigan bankruptcy attorney for Detroit, Flint, Ann Arbor, and Saginaw about the options suited to your situation. We can work with you to find a way to help you resolve tax liens, wage levies, and even to remove existing tax liens. Were here to guide you through this process. Schedule a free consultation to discuss the tax debt relief solutions available to you. Weve helped tens of thousands of clients resolve their debt, and were ready to help you too.
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Can Bankruptcy Stop Tax Liens
Does bankruptcy remove tax liens? The answer is a partial yes. Legal and tax experts agree that bankruptcy cannot completely stop pre-existing tax liens by the IRS.
While the automatic stay will stop new lien petitions, existing liens arent removed when you file for bankruptcy. For bankruptcy and IRS liens which existed prior to bankruptcy, the bankruptcy will be of little effect.
Heres how it works. If you have a federal tax lien placed on any property because of back taxes that you owe, the discharge of that debt during bankruptcy wont remove the lien. The lien will have to be removed separately if you wish to sell your property with clear title.
Therefore, bankruptcy for liens is not the best option. One recommendation is to get back on your feet financially, through bankruptcy, and then attack the liens with help from your lawyer.
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Find Out What Happens To Irs Collection Of Tax Debts When You File For Chapter 7 Or Chapter 13 Bankruptcy
By Carron Nicks
A bankruptcy case can wipe out older income tax debt that meets qualification guidelines. It can also give you a way to pay back recently assessed taxes at a payment amount lower than what the IRS would offer. In this article, you’ll learn more about how bankruptcy can help with your IRS debt.
What Happens To A Nondischargeable Tax Debt
Income tax debts are treated differently depending on whether you file a Chapter 7 bankruptcy or a Chapter 13 case.
- Chapter 7 bankruptcy. Except for the automatic stay, bankruptcy cases don’t have much effect on tax debts that can’t be discharged. Once the bankruptcy court issues the discharge, the court clerk will close the bankruptcy case. If the bankruptcy case doesn’t discharge the IRS tax debt, the IRS will be free to resume collection actions.
- Chapter 13 bankruptcy. If you have nondischargeable IRS debt, you can use a Chapter 13 payment plan to manage it. You’ll propose a plan to pay your IRS debt over a three- to five-year period. You’ll still get the benefit of discharging your older unsecured IRS debt, and your nondischargeable debt will get paid in full.
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How A Chapter 13 Bankruptcy Can Help
If your state tax obligation wont go away, Chapter 13 bankruptcy will let you spread the payments over three to five years. Youll have the added benefit of potentially paying less on other debt, such as credit card balances, leaving you a larger percentage of your income to pay off the tax.
Understand, however, that tax debt can be complicated. Before you explore this route, youll want to get an assessment with a bankruptcy attorney. Getting legal help isn’t as expensive as you’d think, and most people believe hiring a bankruptcy lawyer is well worth the cost.
Do The Courts Ever Deny A Chapter 7 Bankruptcy
It can happen. Most individual debtors receive a discharge under Chapter 7.
However, if the courts find that an individual concealed money or other assets, fraudulently transferred assets that should have been used to pay off debts, or otherwise broke the law, the entire bankruptcy case may be denied.
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Accruing New Debt Under Bankruptcy
One of the provisions of a bankruptcy is that the debtor may not acquire any other delinquent balances while under the courts supervision. Barger said taxes may be defined as new debt if a person is unable to pay them. That can either force the court to dismiss or convert the current bankruptcy.
New debt that a person acquires while already in a bankruptcy is not protected from collection by the bankruptcy court, because it was not disclosed in the initial filing, Barger said.
In a Chapter 11 or Chapter 13 filing, both of which stretch over a period of time, the failure to file taxes or to keep current on new tax payments can result in a conversion of the bankruptcy to a Chapter 7 unless the case is dismissed entirely, Archer said.
Chapter 7 bankruptcies are much more brutal than 11s or 13s because they will liquidate all non-exempt assets to pay creditors,” he said. ” 11s and 13s are more like court-brokered negotiations.
In a Chapter 7 case, Archer explained, the failure to pay post-petition taxes will affect neither the bankruptcy nor the tax debt.
The debt isn’t discharged in the bankruptcy case, and the bankruptcy code prohibits filing for a Chapter 7 bankruptcy more than once every eight years, he said. So that debt wouldn’t be going anywhere.
Sponsorship Issues Affect When To Declare Bankruptcy
When youre sponsoring someone, youre essentially taking on a financial responsibility and commitment to the person youre trying to sponsor to come into Canada. That means there are complications when in comes to bankruptcy and sponsorship. You are disqualified from sponsoring an immigrant if you have an uncompleted bankruptcy if you have not been discharged from your bankruptcy, you will not be permitted to act as a sponsor.
More bankruptcy and proposal related questions and answers can be found on our two FAQ pages:
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What Happens If I Have Tax Debt That Cant Be Erased Yet
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.
What Are Some Other Solutions For Tax Debt
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.
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Filing Bankruptcy In Oklahoma On Taxes
Tulsa debtors can only ask for partial or complete forgiveness on tax bills incurred at least three years before filing a request for personal bankruptcy, according to the Bankruptcy Abuse Prevention and Consumer Protection Act
The three-year window of time begins with the date the tax returns were filed with a state government or the Internal Revenue Service
So if a consumer filed his 2007 tax return in 2013 and owes taxes as a result, he could not ask for leniency on that debt in a bankruptcy case filing until 2016.
Also, BAPCPA requires everyone filing personal bankruptcy to have all required tax returns submitted to their state and federal government offices before being allowed to request bankruptcy in Oklahoma.
What If Im Not Required To File Tax Returns Can I File Bankruptcy
Yes!
If you are not required to file tax returns by law, then you do not need to supply tax returns to the trustee. Some trustees will ask for an affidavit stating that you are not required to file tax returns. You may not need to file returns if your only income is from social security, for example.
You should be certain that this is the case, however. Sometimes clients tell us that theyre not required to file tax returns when, in reality, they are required to file returns. This could be a problem.
If you work with a tax professional, you should consult that professional to determine whether you are required to file. If you do not work with a tax professional, good news. Attorney Best is also a tax attorney. We can work with our clients to determine whether you are required to file tax returns. Moreover, if you are required to file, but havent done so, we can file them for you!
One of the reasons people hire our office to file their bankruptcy is that its one stop shopping for bankruptcy and tax. We are even able to perform a tax dischargeability analysis!
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Discharging State Income Taxes In Bankruptcy
Discharging State Income Taxes in Bankruptcy. FTB California State income tax can be burdensome and may contribute to a debtors decision to file for bankruptcy. Fortunately, state income tax is dischargeable in bankruptcy taxes under certain circumstances. Those circumstances are largely identical to the circumstances under which federal income taxes can be discharged, as the power of the bankruptcy courts are not affected by whether the taxes are state or federal.
First, the bankruptcymust be filed three years from the date the return was due . To give an example, the due date of the 2017 Form 540 was October 15, 2018. A 2017 California income tax liability cannot be discharged in bankruptcy until October 15, 2021.
Second, debtors seeking to discharge state income tax must have filed a tax return for the income tax on which they seek to have discharged. That tax return does not have to have been filed on time a late tax return filing will suffice, as long as the return was filed more than two years before the bankruptcy commences. However, under the current bankruptcy laws, state and federal taxes cannot be discharged in bankruptcy if the IRS or state files a return on your behalf.
Please contact usfor more information about bankruptcy anddebt settlement. RJS LAW is an honest, ethical and trustworthy law firm that can guide you through the process referring you to trusting professionals. Phone: 595-1655
Five Tips For Bankruptcy Filers
Carl G. Archer, a bankruptcy lawyer with Maselli Warren, P.C., in Hamilton, New Jersey, offers the following tips for individuals filing bankruptcy and an income tax return.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we’ve got you covered. Feel confident doing your own taxes.
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