Will Bankruptcy Discharge My Tax Debt?
Filing for bankruptcy has the power to turn your life around and get you on the right road to financial recovery. However, it’s not an ideal solution to all your money problems, and there are some areas where bankruptcy won’t provide relief which can be true for certain tax debts.
Yet, how it will affect you depends on different factors, and the best thing you can do is start working with a qualified bankruptcy attorney to evaluate your case and provide expert advice on how to proceed. If you need help in Los Angeles County or Orange County, including the cities of Los Angeles and Irvine, reach out to us at The Orantes Law Firm.
Taxes in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is one of the most common choices for individuals looking to discharge debt and build a new financial future. Also, “liquidation” bankruptcy, or Chapter 7, requires the individual to sell off any non-exempt assets and use these proceeds to pay off creditors before any other dischargeable debts will be addressed. That said, the vast majority of Chapter 7 filers won’t have to do this because the assets they do have will almost always be exempted. It’s also important to know what debt is dischargeable and what debt isn’t.
Dischargeable debts: Credit card debt, personal loans, past-due rent or utilities, medical bills, and some past-due income tax debt that meets the following criteria:
is at least three years old;
is free from tax evasion or fraud, and;
there was a return filed in the tax year you’re targeting.
Nondischargeable debts: Federal student loans, alimony, child support, tax liens, property taxes, employment taxes.
Taxes in Chapter 13 Bankruptcy
Individuals who have a higher income or more assets they want to protect can file for Chapter 13 bankruptcy. With Chapter 13, you’re allowed to keep all your assets and establish a single repayment plan that includes all your debt. This plan must be followed for three to five years, and in the end, any dischargeable debt will be wiped out. However, like Chapter 7, not all debt will be dischargeable, including the limits on tax debts outlined above. That said, you may be able to include these tax debts in your repayment plan, which can significantly reduce the total amount owed.
Taxes in Chapter 11 Bankruptcy
Chapter 11 bankruptcy is mainly reserved for businesses and is commonly called “reorganization” bankruptcy. This option allows your business to stay in operation while agreeing to a repayment plan with your creditors. In most cases, businesses will not be allowed to discharge any tax debt, and it’s always possible the government will hold back payments on newly filed taxes to be used toward amounts already owed.
Why You Need a Bankruptcy Attorney
The act of filing for bankruptcy isn’t overly complicated, but the preparation that needs to be done before filing is crucial. An experienced attorney can help you organize your finances in a way to maximize the amount you’re able to keep and minimize the negative effects of the filing. They can also advise you throughout the entire process when questions or concerns come up. Filing for bankruptcy is a long-term solution and one that shouldn’t be taken lightly. You owe it to yourself to get the best help possible.
Turn to The Orantes Law Firm for Help
If you’re in the Los Angeles County or Orange County area and would like to speak with a bankruptcy attorney about your options for discharging tax debt, call us at The Orantes Law Firm to schedule a consultation and start taking control of your future.