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:
Filing A Chapter 13 Bankruptcy May Help
So what happens if you are financially responsible for the debts caused by a DUI or your willful or malicious injury to another person or their property and you do not have the funds readily available on hand to repay the debt? Although the debts are not dischargeable in a Chapter 7 bankruptcy you can file a Chapter 13 Bankruptcy to repay the debts over a period or three to five years. If the debts cannot be repaid within the five years due to your financial circumstances you may always file another Chapter 13 bankruptcy to pay the remaining balance.
If you owe any debt related to an accident it is best to seek the advice of an experienced bankruptcy attorney that will help you either discharge the debts in a Chapter 7 or repay the debts in a Chapter 13 and ultimately help you move on with your life.
At Bond & Botes, our affiliated offices offer free initial consultations. Please feel free to call one of our conveniently located offices to set up a private consultation with one of our experienced attorneys. We will analyze your situation and help you to make the best decision possible to help you eliminate that debt once and for all.
The Return Was Filed At Least Two Years Ago
The tax debt must be related to a tax return that was filed at least two years before the taxpayer files for bankruptcy. The time is measured from the date the taxpayer actually filed the return. In most cases, this covers the same period of time as the due date rule, unless you missed the due date and filed the return late.
Tax debts that arise from unfiled tax returns are not dischargeable. This is an important distinction, because the IRS routinely assesses tax on unfiled returns. These tax liabilities can’t be discharged unless and until the taxpayer files a tax return for the year in question.
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Is Tax Debt Discharged In Bankruptcy
Although the automatic stay will stop the IRS or state taxing authority from collecting tax debts during your bankruptcy , whether your tax debt will be wiped out at the close of your bankruptcy is another matter. To learn more, see our area on Tax Debts in Bankruptcy.
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Exceptions To Discharge Under The 3
There are circumstances when taxes are not dischargeable, even though the debtor meets all of the requirements of 3-2-240 rules.
TAX EVASION AND FRAUD If a taxpayer willfully evades taxes or commits tax fraud, the taxes involved are not dischargeable. §523. However, this rule applies only in the case of deliberate tax evasion, not an honest mistake.
UNFILED TAX RETURNS If a Debtor has not filed a tax return for a tax period that ended pre-petition, the Debtor will not receive a personal discharge for the tax liability relating to that tax period much to the Debtors consternation,
TAX RETURN FILED FOR TAXPAYER BY IRS WITHOUT TAXPAYERS CONSENT IRS can file tax returns for you and assess taxes against you if and when you do not file a tax return. This can render non-dischargeable, the taxes arising from these substitute returns filed by the IRS if the tax return is filed without your agreement. It is not dischargeable in bankruptcy even if it otherwise meets the 3-2-240 rules. Whether the taxes assessed on tax returns filed for a taxpayer by the IRS are dischargeable depends mostly on whether the IRS filed the forms with or without the taxpayers permission. TIP: It is critical you file your tax returns to enable you to discharge them in bankruptcy. Preferably, and to be safe, file them on time, even if you dont have funds to pay the tax liability arising from the return.
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Paying Off Debts Not Discharged In Bankruptcy
If you have debts that cannot be part of a bankruptcy, there may be ways to alleviate the financial obligation to improve your cash flow. For example, if you are continuing to pay off a mortgage, you may have an option to renew at a lower interest rate or increase your amortization to lower your monthly payments.
If you have a considerable car loan and cannot afford your payments, you may need to sell and downgrade to a more affordable vehicle. It can be a tough choice, but cars are so sturdy these days that even older, higher-mileage models can provide worry-free transportation for several years.
Items like child support, alimony, or income tax arrears can be more challenging to deal with. For income taxes, contact the CRA to see what arrangements they may be willing to make to help you catch up. And while Im no family law expert, you may be able to renegotiate the terms of your child support or alimony. If two parties agree, anything is possible, and it never hurts to ask.
Do You Have To File A Tax Return When Going Through Bankruptcy
While you can sometimes deal with past tax debt through a bankruptcy filing, you wont be protected from all past, current or future tax liability or obligations to the IRS.
- Chapter 13 filers are required to file returns for tax periods ending within four years of the bankruptcy filing before you have a meeting with creditors to work out your debt repayment plan.
- In Chapter 7 and Chapter 11, the bankruptcy estate that takes ownership of your assets is also required to file a separate tax return. The return must be filed by the trustee appointed to manage assets but sometimes in Chapter 11, the bankruptcy filer acts as the trustee and thus must take on this obligation.
And, no matter what chapter of bankruptcy you file under, all tax returns due after you file must be submitted on time unless you file for an extension. Failing to file or request an extension can result in dismissal of your bankruptcy proceedings or conversion of your bankruptcy to a different type.
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What Bankruptcy Can’t Do
Bankruptcy doesn’t cure all debt problems. Here’s what it can’t do for you.
Prevent a secured creditor from foreclosing or repossessing property you can’t afford. A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. The lien stays on the property until the debt gets paid. If you have a secured debta debt where the creditor has a lien on your propertybankruptcy can eliminate your obligation to pay the debt. However, it won’t take the lien off the propertythe creditor can still recover the collateral. For example, if you file for Chapter 7, you can wipe out a home mortgage. But the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can exercise its lien rights to foreclose on the house once the automatic stay lifts.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you’ll continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you’ll have to pay these debts in full through your plan.
Eliminate most tax debts. Eliminating tax debt in bankruptcy isn’t easy, but it’s sometimes possible for older unpaid tax debts. Learn what’s needed to eliminate tax debts in bankruptcy.
Eliminate other nondischargeable debts. The following debts aren’t dischargeable under either chapter:
Tax Debts In Each Chapter
Tax debts are typically priority debts in all chapter filings. They’re addressed and paid first when assets are liquidated in Chapter 7, and they must be included and paid in full in Chapter 12 and 13 payment plans.
Priority tax debts are not dischargeable in Chapters 11, 12, or 13.
You can receive tax refunds while under bankruptcy protection, but they will most likely be directed toward paying your tax debts.
Consumer Proposals Vs Bankruptcy And Cra Debt
A consumer proposal is a popular alternative to bankruptcy because it provides debt relief from unsecured creditors, including debt forgiveness from CRA. When you file a consumer proposal with a licensed insolvency trustee you are not required to sell any of your assets to repay your debts or pay any surplus income.
To start the consumer proposal process, you will first need to schedule a consultation with a licensed insolvency trustee where you will review your finances. After reviewing your income, expenses, and total debts, the two of you will find a fair amount that you can pay each month to all of your creditors. These payments can last up to five years after which, you will be discharged from all debts covered by the proposal, including CRA debts.
Tax debt in Canada can be included in a consumer proposal and the CRA will often accept less than your full amount owing, though how much they will settle for will depend on the situation. In order to get the CRA to accept your proposal, you will have to file any and all outstanding tax returns. If you want CRA debt relief and 50% or more of your total unsecured debts are owed to the agency, you will have to get them to accept the proposal.
If a consumer proposal is not a viable option for you, then filing for bankruptcy may be your next solution. With this, your trustee would be required to file a pre-bankruptcy tax return and a post-bankruptcy tax return.
Tax Debt And Chapter 7 Options
In a Chapter 7 case, all property owned by a Debtor becomes the property of the bankruptcy estate upon initiation of the case. The Debtor is permitted to keep all exempt property, and all other property is turned over to the Bankruptcy Trustee for sale and distribution of the sale proceeds to Creditors. Debtors with the non-exempt property they desire to retain should file Chapter 13 bankruptcy to preserve their assets as Debtors are permitted to keep all property in a Chapter 13. In Chapter 7, almost all of a Debtors debts are completely eliminated, and the Debtor emerges from Chapter 7 debt free. Certain debts, however, are not dischargeable in bankruptcy, including tax liabilities. Certain tax liabilities, however, may be discharged in bankruptcy.
The above time periods are extended based on certain specific actions such as a prior bankruptcy filing, pending Offer in Compromise, and other limited actions.
TIP: Timing can be important in attempting to discharge old tax liabilities. Consult with a bankruptcy attorney to evaluate the proper time for you to file bankruptcy to enable you to take advantage of the Chapter 7 discharge.
For more information on Tax Debt & Bankruptcy In Utah, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling 501-0100 today.
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Can You File For Bankruptcy To Avoid Paying Restitution In Pennsylvania
Restitution is a court ordered payment to a victim of a crime. Whether you were convicted of a felony or misdemeanor, restitution is often ordered to compensate the party who was harmed or suffered a financial loss due to your criminal behavior. In some cases, restitution could be ordered as a probation condition. The amount will vary on the degree of damages. For example, if you crashed into another persons car, you could be ordered to pay for the cost of repairs. However, if you masterminded a fraudulent financial pyramid scheme, you could be ordered to pay hundreds of thousands of dollars to your victims.
Because many people view restitution as a debt, they wonder if they could eliminate it by filing for bankruptcy. Unfortunately, restitution is categorized as non-dischargeable debt under the Bankruptcy Code. This means that you cannot avoid your restitution obligations by filing for bankruptcy in Pennsylvania.
However, bankruptcy could still provide you some relief. If you have been ordered to pay restitution, our Philadelphia bankruptcy attorneys could have options to relieve your burden. While it is impossible to eliminate your restitution, bankruptcy could make it more manageable. To see if bankruptcy could be helpful, call Young, Marr & Associates at 701-6519.
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How Can I Discharge Tax Debts In Chapter 7
You can discharge past due income taxes in a Chapter 7 proceeding only if the following is true:
- The taxes incurred were based on income tax, not payroll or other taxes.
- You did not commit fraud or tax evasion.
- The tax debt is at least three years old.
- You filed a tax return. You cannot be eligible to discharge a tax debt if you never filed a return. You may, however, be able to file a late return.
- You pass the 240-day rule. The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition or must not have been assessed yet. If the IRS has stopped collection efforts due to an offer in compromise, this time limit may be extended.
- The IRS has not yet filed a tax lien on your property.
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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.
What Is Chapter 7 Bankruptcy
Chapter 7 bankruptcy is spelled out in Chapter 7 of the United States federal Bankruptcy Code and is also sometimes referred to as straight or liquidation bankruptcy. In this form of bankruptcy, you might be eligible to cancel some or all of your debts or sell your property or assets to repay creditors. However, the bankruptcy court essentially assumes control of your property as well as your debts when you file Chapter 7. In rare exceptions, individuals who file Chapter 7 might still be able to manage their own property and income after they file for bankruptcy.
If you are considering filing Chapter 7 bankruptcy to resolve any tax debts exceeding $10,000, please continue reading and contact our offices today by calling 793-1231.
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Special Rules For Student Loans
Special rules apply to other types of government debt as well. For example, student loan debt isnât usually dischargeable during Chapter 7. Debtors must usually show undue hardship to discharge their education debt. Undue hardship means different things in different parts of the country because the Supreme Court has not ruled on this issue.
What Are The Requirements For Discharging Taxes Under The Bankruptcy Law
While you can discharge some of your tax debt under the bankruptcy laws, there are certain requirements that need to be met for the debt to qualify for bankruptcy discharge. Some of these requirements include that:
- The taxes are based on income
- The taxes were due a minimum of three years prior
- The return was filed at least two years before filing bankruptcy
- Your taxes were assessed at least 240 days ago
- No willful fraud or tax evasion occurred when filing the return
A skilled bankruptcy attorney at the Law Office of Rebecca L. Evans can help you determine which of your tax debts qualifies for discharge under the bankruptcy law. We can also help you gather the information and proper paperwork you need to file making the process easier for all involved.
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If You Do Not Live In England Or Wales
You can declare yourself bankrupt in England or Wales if you live outside the UK, provided you lived in England or Wales or have had a business there at some point in the last three years. The Bankruptcy Order made in England and Wales may not be recognised in other countries outside the UK.
Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
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