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Can You File For Bankruptcy If You Owe The Irs

Important Note On Late

Can I File Bankruptcy on Back Taxes?

Unfortunately, a few courts, including a federal appeals court have held that a tax return filed even a day late is not a tax return for the purpose of the statute allowing discharge of tax debts in bankruptcy. In other words, if your forms were filed late without an extension in any given tax year, you cannot discharge the taxes for that year.

In a Chapter 13 case, the Debtor formulates a plan to re-pay their Creditors over a three to five year period. The Debtor makes a single monthly payment to the Bankruptcy Trustee who distributes the payment among the Debtors Creditors in the manner set forth in the Chapter 13 Plan. Tax debts are generally non-dischargeable in bankruptcy. However, Chapter 13 can offer significant benefits in dealing with taxing entities.

Chapter 13 Bankruptcy And Irs Tax Debt Relief

In a Chapter 13;bankruptcy case, taxes that meet the above criteria are treated as unsecured debts in your bankruptcy case. The IRS receives the same percentage of its debt that your other unsecured creditors, such as medical debts and , receive through your Chapter 13 plan.

If your income tax debt does not meet the above criteria, you must pay the taxes in full through the bankruptcy plan. However, instead of a lump sum, you can spread out the debt over the term of the bankruptcy plan.

Does Bankruptcy Clear Tax Debt In Missouri And Kansas

Tax debt is not quite the same as other consumer debts, and cannot always be discharged through bankruptcy. However, in some cases, particularly with old taxes, bankruptcy can provide debt relief. You can discharge tax debt in either Chapter 7 bankruptcy or Chapter 13 bankruptcy if:

  • The debt is for income taxes. Property and other types of taxes are not eligible for discharge.
  • The tax debt is at least three years old and returns were filed. New taxes are generally nondischargeable for this reason. However, the statute of limitations on tax collection is 10 years, so if you have older overdue taxes, bankruptcy can help.
  • You filed tax returns for eligible debt at least two years before filing bankruptcy. If you do not file, the IRS may complete a return for you. However, this substitute return is not sufficient if you wish to file bankruptcy. You must file a tax return for each year yourself, even if you miss the deadline. We often tell clients that being unable to pay your taxes is not a crime, however, not filing a return is a crime!
  • Your debt passes the 240-Day Rule. If the IRS has assessed your tax debt, it must be at least 240 days prior to the day you file bankruptcy. In an assessment, the IRS considers what you owe and tries to negotiate a solution with you.

Read Also: How Much Is Bankruptcy Chapter 13

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.;

Irs And Chapter 13 Bankruptcy

How to Pay the IRS If You Owe After Filing Taxes

You should apply for a Chapter 13 bankruptcy discharge if you cannot file under Chapter 7 bankruptcy. The only reason why you may find it difficult to discharge your personal income tax during bankruptcy is if its termed priority unsecured debt, Chapter 13 bankruptcy will make you pay your debt in full.

One major advantage to filing for bankruptcy in IRS tax is that the service will halt all collection efforts till you get a discharge on the money, or you get a rejection. Also, Chapter 13 bankruptcy can help you pay a loan for less than what you owe.

If you desperately need IRS to stop their constant calls and harassment, then filing for a Chapter 13 bankruptcy can do that. It helps you repay your debts without foreclosures, levies, and wage garnishments. Discuss with your bankruptcy attorney before you file for a Chapter 13 bankruptcy or any other type of bankruptcy. One thing to remember when filing bankruptcy is that there are certain rules that are dependant on the state. For example, if you are filing bankruptcy in Tennessee, filing bankruptcy in Indiana, filing bankruptcy in Illinois, or filing bankruptcy Louisiana, there are going to separate and individual rules for each place.

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When Should I Declare Bankruptcy

When asking yourself Should I file for bankruptcy? think hard about whether you could realistically pay off your debts in less than five years. If the answer is no, it might be time to declare bankruptcy.

The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them forever. If some combination of bad luck and bad choices has devastated you financially, and you dont see that changing in the next five years, bankruptcy is your way out.

Even if you dont qualify for bankruptcy, there is still hope for debt relief. Possible alternatives include a debt management program, a debt consolidation loan or;debt settlement. Each one of those choices typically require 3-5 years to reach a resolution, and none of them guarantees all your debts will be settled when you finish.

Remember that bankruptcy carries significant long-term penalties. It is stuck on your credit report for 7-10 years, which can make getting loans in the future very difficult.

The flip side of that is there is a great mental and emotional lift when all your debts are eliminated, and youre given a fresh start.

Advantages Under Chapter 13

Chapter 13 can handle all of your income tax debts, along with all your other debts, in one tidy package.For bankruptcy purposes you can generally have three kinds of income taxes, depending on their age and other considerations.

There are those taxes that are old enough and meet some other conditions so that they would be discharged in a Chapter 7 case. Under Chapter 13 these are lumped in with all your other general unsecured creditorscredit cards, medical debts, and suchand only paid to the extent that you have available money to do so during the course of your case. Often thats not very much because of other more important debts that must be paid ahead of the general unsecured debts.

The newer, nondischargeable taxes are priority debts, meaning that the tax itself has to be paid in full during your Chapter 13 case. BUT usually interest and penalties stop accruing throughout the payment period, which alone could potentially save you thousands of dollars. Plus the penalties that accrued before filing the case are usually treated as general unsecured debt, and therefore only paid to the extent theres extra money to pay it.

The bottom line is that at the end of a successful Chapter 13 case you would owe nothing to the IRS or any other tax authority, and usually nothing to anybody else either.

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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.

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What To Do If You Owe The IRS and Can’t Pay – Overview
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  • Know what dependents credits and deductions

  • Know what tax documents you’ll need upfront

  • Learn what education credits and deductions you qualify for and claim them on your tax returnGet started

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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The 3 Years 2 Years And 240 Day Rules

The Bankruptcy Code sets out specific time periods that determine if you can discharge your taxes, commonly called the 3-year, 2-year, and 240-day rules . To discharge back income taxes, you must meet the requirements of all three rules.

  • THE 3-YEAR RULE ;To discharge your back income taxes, they must become due at least three years before you file for bankruptcy. However, if you got an extension of time to file, the three-year period runs from the date the taxes are due under the extension.
  • THE 2-YEAR RULE Under the 2-year rule, your;income tax returns must have been filed at least two years before you file your bankruptcy petition. This requirement allows you to discharge your taxes even if you file your tax forms late, as long as you file the forms at least two years before filing for bankruptcy.
  • 240 DAY RULE The taxes were assessed at least 240 days before the date of filing of the bankruptcy petition.
  • The above time periods are tolled based on certain specific actions such as a prior bankruptcy filing, pending Offer in Compromise, and other limited actions.

    The Chapter 7 Bankruptcy Discharge

    The amount of penalties and interest on taxes owed and late filing can be onerous.; However, all taxes, interest and penalties owed at the time of filing a Chapter 7 bankruptcy petition can be discharged if certain requirements are met.; If you qualify, a significant burden can be lifted from your financial shoulders.

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    Managing Irs Debt With Chapter 13 Bankruptcy

    For taxes that arent dischargeable in a Chapter 7 case , Chapter 13 bankruptcy might be a viable alternative. In a Chapter 13 case, youll propose a repayment plan over three to five years. The monthly amount will depend on the type of debt, the amount you owe, and how much disposable income you have.

    Some debts get special treatment because of their importance, like recent income taxes, child support, and alimony. These priority debts must be paid fully over the course of the payment plan. Nonpriority debts, like older taxes and credit cards, may or may not be paid depending on how much disposable income remains after accounting for your reasonable and necessary expenses. Any nonpriority debts not paid through the plan will get discharged at the end of the case.

    Bankruptcy And The Irs

    How to Pay the IRS if You Owe Taxes

    There are advantages to bankruptcy beyond the temporary Automatic Stay protection. In many cases, your bankruptcy can extend the time required to pay your debt. The IRS is considered a priority creditor in most cases, meaning the interest is secured by the Notice of Federal Tax Lien. This instrument is used by the IRS to set a claim against your property for payment. The IRS, unlike a credit card company, has greater power to reach some kinds of assets, possibly including your home.

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    Below Are The Criteria You Must Meet For Irs Tax Debt Forgiveness Through A Bankruptcy Filing:

    • The debt you owe to the IRS is for income taxes.
    • You did not willfully evade paying taxes or commit tax fraud.
    • The due date for the taxes you owe must be at least three years before the filing of your bankruptcy petition to qualify for IRS debt relief in bankruptcy.
    • The tax returns that resulted in the tax debt were filed at least two years before filing your bankruptcy petition.
    • For IRS debt forgiveness through a bankruptcy filing, the IRS must have assessed the tax debt at least 240 days before you filed your bankruptcy petition.

    The above set of criteria is often referred to as the 3-2-240 Rule. If all the elements of the 3-2-240 Rule are met, you may be eligible for tax relief help by filing a Chapter 7 or Chapter 13 bankruptcy case.

    Fremont Bankruptcy Attorney Blog

    By Ryan C. Wood

    I run across this scenario far too often: finances are strained at home so you decrease your tax withholding on your paycheck.; This choice is really just a temporary Band-Aid though.; You have a little more money to spend on your expenses but you will end up owing the taxing authorities money when it comes time to file your taxes at the end of the year.; If you dont pay your taxes that are due by April 15 you will end up having to pay penalties and interest on top of the taxes owed.; So what happens if you encounter this scenario after you have filed for bankruptcy?

    Chapter 7 Bankruptcy

    The taxes you owe after you file a Chapter 7 bankruptcy case is your own responsibility.; One thing to point out is that since your Chapter 7 bankruptcy case eliminated all of your eligible dischargeable unsecured debts you should now have some breathing room to change your withholding back to the correct amount.; If you are still struggling to pay your expenses after your Chapter 7 bankruptcy case is filed you need to take a close look at your budget.; That may mean cutting down on a lot of expenses you spend your money on.

    Chapter 13 Bankruptcy

    If you need to modify your chapter 13 plan to include additional tax debt you should consult with an experienced bankruptcy attorney in your jurisdiction.

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    Tax Payment Plans In Chapter 13 Bankruptcy

    If you are not eligible for your taxes to be fully discharged in bankruptcy , you may be able to utilize Chapter 13 to do a repayment plan to eliminate the tax and remove the lien.; This can enable you to make payments on your tax debts for up to 60 months, while still eliminating other debts for a payment your budget can afford.

    The payment plan will usually be at zero percent interest, unless there is a lien against property.

    The amount you pay will be based on your budget, and also on the amount owed to the taxing agencies for taxes that are not dischargeable.;

    Interest Stops Accruing On Unsecured Tax Obligations

    Should You File Bankruptcy if You are Owed a Tax Refund

    If the IRS has not filed a Notice of Federal Tax Lien NFTL against a Debtors assets prior to the date the Debtor initiates a Chapter 13 case, interest stops accruing on the unpaid tax liability. If the IRS HAS filed a NFTL, the tax obligation is secured by the lien, and interest must be paid on the tax debt to the extent of the value of the underlying collateral. For example, if you owe the IRS $8,000, and own property worth $5,000, interest would continue to accrue only on $5,000 of the tax debt. The remaining $3,000 portion of the tax debt would be unsecured.

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    Does Bankruptcy Clear Irs Debt The Simple Answer

    The simple answer here is:;


    If a Chapter 7 bankruptcy is discharged, the IRS tax debt listed will likely be erased if all the criteria are met.

    If a Chapter 13 bankruptcy is discharged, the IRS tax debt may be reduced greatly if the criteria are met. In this case, the remaining debt will be placed on a payment plan with the bankruptcy court.;

    If it is not discharged or placed in a Chapter 13 payment plan or you stop paying on the plan, the collection can continue. The IRS will still be there;waiting.;

    They dont forget about an owed tax debt.;

    A chapter 7 will be the better option to clear or erase a tax debt with the IRS.;


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