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Can You File Bankruptcy On Irs Debt

Go To Court To File Your Bankruptcy Forms

How Can Bankruptcy Settle IRS Tax Debt?

Once you enter the doors of your local courthouse, you will be greeted by security guards, who will ask you to pass through a metal detector. Once you pass security, you will go to the clerkâs office and tell the clerk that youâre there to file for bankruptcy. They will take your bankruptcy forms and your filing fee .

Do not submit your bank statements or tax returns to the court. These documents go to the trustee after the case is filed. Check out Step 7 below for more info on that.

While you wait, the clerk will process your case by scanning your forms and uploading them to the courtâs online filing system. This usually takes no more than 15 minutes.

Once done, the clerk will call you back to the front desk and give you:

  • Your bankruptcy case number

  • The name of your bankruptcy trustee

  • The date, time, and location of your meeting with your trustee

At this point, your case has been filed! Congrats! The automatic stay now protects you from all debt collectors. But youâre not home yet – there are other steps you need to complete to get a fresh start under Chapter 7 of the Bankruptcy Code!

Do Not Ignore Irs Notices Bring The Notice To Our Office At Once

If you are facing back income taxes, the worst thing you can do is ignore notices from the IRS. The first step to an IRS collection would be to send you a Notice of Federal Tax Lien. If you receive this notice, you should speak to a qualified attorney immediately. There would still be time to file Chapter 7 or Chapter 13 bankruptcy, which would halt the IRS collection process.

Have More Than Three Years Passed Since The Tax Return Giving Rise To The Tax Liability Was Due Including Applicable Extensions

11 U.S.C. § 507. Individual income taxes for the period ending 12/31/16 are thus the most recent taxes that could be discharged, as of late April 2020, or late October 2020 if the taxpayer obtained an extension of time in which to file the return. Certain taxpayer actions can extend this three-year period those include a prior bankruptcy filing and a request for a collection due process hearing. See language immediately following 11 U.S.C. § 507.

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What About My Tax Refund

This question comes up quite a bit. If you anticipate a large refund, talk about this issue with your attorney. It may be a good idea to delay filing until after you receive your tax year refund for the past year. Technically, when consumers file for bankruptcy, all their non-exempt property goes to the trustee. That includes tax refunds. Since the policies vary depending on where you live, you may be able to use the wildcard exemption to exempt the tax return.

Let’s Summarize…

Owing past-due income taxes can be stressful. These bills are often so high that, even if you fall behind a little, you could end up owing a lot of money. Fortunately, if your debts meet certain requirements, filing Chapter 7 bankruptcy can erase past-due income tax debt in one fell swoop.

Dealing With Your Car Loan

Can You File Bankruptcy On Irs Tax Debt

If you own a car that you still owe on, youâll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.

If you want to surrender the car to the lender and discharge the debt, you donât have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.

If you want to keep the car, you can either reaffirm the loan or redeem the car. If youâre reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.

To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.

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Filing For Chapter 13 To Deal With Tax Debt

During a Chapter 13 bankruptcy, all of your debts are consolidated into one monthly payment that addresses all of the outstanding debts. If you have numerous debts, including unsecured debts, secured debts, and tax debt, Chapter 13 can offer you some relief. It does not necessarily offer you relief from the tax debt, but it frees up your money to pay off that tax debt while not paying off other lower-priority debts.

Chapter 13 works by taking into account your monthly finances and creating a repayment plan that is within your means with tax debt being prioritized the highest. In order to discharge any part of your tax debt, you must meet the same basic conditions that were mentioned above. Those who filed fraudulent taxes, never filed a return, or willfully attempted to evade tax payment, can roll their tax debt into their Chapter 13 repayment plan, but it will not be discharged by the bankruptcy. In this case, the debt will survive the bankruptcy and require payment. You may, however, still qualify to have other debts partly forgiven.

Eliminating Tax Debt In Bankruptcy

The following set out the rules to discharge an IRS debt in Bankruptcy:

  • You filed the Income tax return. At times the IRS files substitute returns when an individual has failed to file. Another name for this is Service Filed Returns. The amounts due on IRS filed returns are not dischargeable.
  • The tax is for income-an income tax. You cannot discharge payroll taxes.
  • The tax debt is at least 3 years old. Generally, the due date is April 15th. If April 15th falls on a Saturday or Sunday the due date will be the 16th, 17th, or 18th. If you have filed for an extension of the filing date, the due date is October 15th, or the 16th, 17th or 18th.
  • You filed the tax return more than 2 years ago. So, late filed tax debts can be discharged.
  • The tax assessment was more than 240 days ago.
  • There was no Fraud or Willful Evasion.
  • There has not been a tolling. Written agreements with the IRS can extend the time to discharge IRS debts.
  • You can get your IRS transcripts by going to Get Transcript FAQs

    When I explain the above mentioned rules to clients they look at me glassy eyed. I dont blame them. The rules are legalistic and confusing.

    For 99% plus of clients I have had there are only 3 rules that apply:

  • The taxes are over 3 years old. That means any IRS taxes owed for the year 2016 or before
  • You filed the taxes and not the IRS and
  • Tax returns for 2015 and before were filed more than 2 years ago.
  • The following is an example of the most common situation:

  • Or, were they filed late?
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    Can You File Bankruptcy On Irs Debt

    Tax season is upon us again, and for many that means tax and other IRS debts. Those struggling to pay off tax related debts may be wondering: can you file bankruptcy on IRS debt? The answer depends on your individual circumstances, but in many cases, bankruptcy offers quick, lasting relief from tax debts. Read ahead to find out when IRS debt can be discharged through bankruptcy.

    Can I File Bankruptcy On Tax Debt

    Can IRS Debt Be Discharged in Bankruptcy? The Answer May Surprise You!

    You may be able to file bankruptcy on some types of tax debt. For instance, you may be able to discharge income tax debt if certain conditions are met .

    Note that you will need to pass the means test to qualify for a Chapter 7 bankruptcy in the first place. The means test compares your disposable income to the state median income for your household size. If your income is too high and you can’t pass the means test, you can file for Chapter 13 instead and develop a plan to repay your debts over the course of a few years.

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    Automatic Stay On Collection

    When you file for bankruptcy, an automatic stay is placed on all debt collection while your case awaits court processing. This means all debtors are prohibited from attempting to collect any payments from you until your case is settled. This goes for credit card debt, some mortgages, car payments, and also tax debt through the IRS Insolvency Unit which deals with bankruptcy cases. Until your bankruptcy is closed, the IRS cannot attempt to collect their debt from you. However, just because they cant collect doesnt mean the IRS cant request that you file any delinquent returns. A late return carries not only your balance but also additional penalties and interest.

    Tax Debt Help From A New Mexico Bankruptcy Attorney

    Chapter 7, Chapter 11, and Chapter 13 bankruptcies all offer options to help you partially or fully discharge your tax debt. If youre considering filing bankruptcy to deal with tax debt that you cant pay, having an experienced bankruptcy lawyer on your side can help you come out with the best chance of recovering in the long term.

    Consulting with an attorney can lead you to discover methods outside of bankruptcy to deal with your debt that you may not have considered. If bankruptcy looks like the best choice for you, having a seasoned team of legal advisors on your side will give you the peace of mind you need to focus on the future and boost your chances at financial security later on. Call us at 503-1637 or contact us online to schedule a meeting with an Albuquerque bankruptcy attorney that can help you plan your next steps.

    We are a debt relief agency and have practiced bankruptcy law for a combined 50 years. Our services include helping individuals and couples file for bankruptcy relief under the Bankruptcy Code.

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    You Can File A Bankruptcy If Your Taxes Arent Done Sort Of

    The Bankruptcy Code requires you to provide the bankruptcy trustee a copy of your Federal income tax return for the most recent tax year ending immediately before filing the bankruptcy. So if you file bankruptcy in 2020, you are required to produce your 2019 tax returns. Failure to provide these returns to the trustee will result in the trustee moving to dismiss your case.

    If you are able to file your tax returns before filing bankruptcy, you should. This makes everything easier. If your taxes arent done, we typically advise you to not file your bankruptcy until your returns are filed.

    But what if theres an emergency? Lets suppose your house is being sold at a foreclosure sale and you havent file your tax returns. Can you file the bankruptcy? Yes, you can file bankruptcy if your taxes arent done, but youll need to supply your tax returns within 7 days of your 341 meeting of creditors. That means youll have about a month to prepare and file your returns.

    What If The Taxes Are Not Dischargeable Or What If The Tax Lien Cant Be Avoided

    Can You File Bankruptcy On Irs Tax Debt

    In Chapter 13 the taxes can be repaid over 5 years. And, it puts a halt to further interest and penalties.

    Disclaimer: Blogs on legal matters are for information purposes only and is not to be construed as legal advice.

    For more information on IRS Debts, call today.

    Please see our blog: IRS Tax Liens and Bankruptcy Also learn more about IRS levies, Federal tax liens, Settle IRS tax Debt, How to cut your IRS Debt, IRS Settlement and IRS payment plan.

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    Managing Tax With Chapter 13 Bankruptcy

    Filing your tax return might not be as burdensome once you realize that using Chapter 13 bankruptcy to manage your tax debt can be a smart move. Here’s why:

    • Dischargeable taxes might be forgiven without any payment at all, depending on the amount of disposable income you have after your reasonable and necessary expenses are deducted from your pay.
    • Dischargeable taxes won’t incur additional interest or penalties .
    • You can satisfy an IRS tax lien through the Chapter 13 plan.
    • The IRS is obligated to abide by the plan as long as you include all your outstanding income tax and keep your tax returns and post-petition tax obligations current during your Chapter 13 plan.

    Bear in mind that any nondischargeable tax that won’t go away in bankruptcy must be paid in full during the three- to five-year Chapter 13 plan. When it’s over, you’ll be caught up on taxes and most or all of your other debts.

    Unlike Chapter 7, in Chapter 13, you can discharge a credit card balance incurred due to paying off a nondischargeable tax debt. Learn more about tax debts in Chapter 13.

    Option : Consumer Proposal

    You may be able to negotiate an agreement with the CRA to pay less than the full amount of income tax debt owing by filing a consumer proposal. Administered by a Licensed Insolvency Trustee, a consumer proposal is a legally binding agreement between you and your creditors to settle your unsecured debts. A consumer proposal allows you to negotiate fixed monthly payments or lump sum settlements over a set period of time, up to a maximum of five years.

    Once you have fulfilled the terms of the consumer proposal, you will be released from all unsecured debts owed on the day you filed. A consumer proposal will stay on your record for three years after your last payment.

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    Bankruptcy Discharge Wont Remove Liens

    While the automatic stay can stop new lien petitions, existing liens arent removed when you file. 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. Even if the debt itself is discharged during your bankruptcy, the lien must be paid. Make sure to do this as quickly as possible, so you dont have issues if you try to sell the property.

    Tax Returns And Chapter 7 Bankruptcy

    Can You Discharge Your Tax Debts Through a Bankruptcy?

    When you file for Chapter 7 bankruptcy, the trustee assigned to oversee your case will ask for your most recently filed tax return. That doesn’t necessarily have to be the tax return for the last tax year, but if it isn’t the most recent return, the trustee will ask for a written explanation.

    The trustee will compare the income you report on your return to the amount listed in your bankruptcy paperwork. If you show that you’re due a refund, the trustee will also want to check that you have the right to protect it and that you’ve claimed the proper exemption amount. If not, you’d be required to turn the refund over to the trustee, who would, in turn, distribute it to your creditors.

    Many people plan to use the return for necessary itemssuch as living expensesbefore filing a bankruptcy case. If you choose this approach, it’s a good idea to keep records of your expenditures.

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    Does Bankruptcy Clear Tax Debt In Canada

    When you file for bankruptcy, you enjoy CRA debt relief along with relief from all other unsecured creditors. The common belief that you cant escape tax debt this way comes from the past. Before 1992, the Canada Revenue Agency was considered a preferred creditor in the Bankruptcy and Insolvency Act, and it could use this status to oppose a debtors discharge from income tax debt.

    Since 1992, it has been listed as an ordinary unsecured creditor on the same level as any bank, credit card company, or other lenders. CRA debt can now be discharged unopposed.

    There are some exceptions to this rule, including those who owe over $200,000 in taxes, and that number represents more than 75% of their proven debts. Otherwise, as a general rule, if you owe Revenue Canada money, insolvency can help.

    Negotiating With Revenue Canada

    The first step you should take when dealing with Canada Revenue Agency debt is to contact your nearest CRA office.

    You will have to explain your financial situation and why you cannot pay your taxes as owed.

    When negotiating with CRA you can offer to pay the taxes you owe in installment payments over a period of time.

    If you owe $1,000 in taxes that you are unable to repay you can offer to pay $100 a month for 10 months, plus any interest charges or penalties the CRA might impose.

    Of course, whether the CRA will accept your offer is up to them, and they might not accept your offer and take additional action against you for collecting on the taxes owed to them.

    Even if your offer is accepted, the CRA will continue to charge you interest until your taxes are paid in full, and the CRA might withhold your child tax credits or GST credits until you have repaid your tax debt fully.

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    Tax Debt Not Eligible For Discharge

    The following types of tax debt are not dischargeable in Chapter 7 bankruptcy:

    • Tax penalties from tax debt that is ineligible to be discharged
    • Tax debts from unfiled tax returns
    • Trust fund taxes or withholding taxes withheld from an employee’s paycheck by the employer

    A debtor unable to discharge tax debt under Chapter 7 may consider other arrangements, such as entering into an installment agreement with the IRS or making the IRS an offer in compromise which will result in the settlement of the tax debt for less than the amount owed.


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