Will Bankruptcy Discharge My Tax Debt?
We often hear from individuals facing financial distress and overwhelming debts, wondering if bankruptcy can discharge their tax debt. It's a common concern and one we're going to explore today. Read on to understand the impact of bankruptcy on tax debt, providing detailed information on the types of taxes that are dischargeable in different types of bankruptcy cases. You'll gain a clearer understanding of your options and how we at EH Law Group can help.
If you're seeking legal assistance on any debt relief matters, don't hesitate to contact our law firm in San Mateo, California. We'll be happy to sit down and discuss your situation and options during a free initial consultation.
Are Taxes Treated as Dischargeable Debt in Bankruptcies?
Bankruptcy can provide much-needed relief from various types of debt, but it's important to note that taxes are generally not considered dischargeable debt. Tax debt is typically categorized as "non-dischargeable priority debt," which means it cannot be eliminated through bankruptcy. Additionally, the term "priority" implies that tax debt is often given higher priority for repayment.
However, it's worth exploring the possibility of discharging some of your tax debt through bankruptcy. Since each case is unique, it's advisable to seek guidance from a knowledgeable bankruptcy attorney who can assess which tax debts may qualify as "dischargeable" in your specific situation.
We want you to know that there are options available to address your tax debt, and consulting with a skilled attorney will help you navigate the complexities and determine the best course of action in your bankruptcy case.
What Taxes Are Nondischargeable?
Unfortunately, not all tax debts can be discharged through bankruptcy. Taxes other than income taxes, such as payroll taxes or fraud penalties, aren't eligible for discharge through bankruptcy. Additionally, if the IRS has already put a lien on your property, the lien will remain even after bankruptcy. You'll need to pay off the tax lien before selling or transferring the property.
Bankruptcy can be a powerful tool for dealing with tax debt, but it's not a one-size-fits-all solution. We encourage you to seek our legal advice to understand all your options and make an informed decision. Our attorneys at EH Law Group are here to help you regain your financial stability and peace of mind.
Taxes in Chapter 7 Bankruptcy
Let's begin with Chapter 7 bankruptcy, also known as liquidation bankruptcy. This type of bankruptcy is the most common, accounting for 239,125 filings out of the 418,724 bankruptcy cases seen between June 2022 and June 2023.
Chapter 7 bankruptcy allows for the discharge of certain types of debts, including some tax debts. However, it's crucial to understand that not all tax debts can be wiped clean under Chapter 7.
In Chapter 7 bankruptcy, income taxes can be discharged if they meet a few specific conditions. These conditions include:
the taxes being income taxes;
you have not committed fraud or willful evasion;
your debt being at least three years old;
you filing a tax return; and
the IRS assessing the income tax debt at least 240 days before filing for bankruptcy.
Taxes in Chapter 13 Bankruptcy
Chapter 13 bankruptcy has strict requirements for discharging tax debt. If some or all of your tax debts are considered “non-dischargeable,” and you file for Chapter 13 bankruptcy, you will generally have to pay them in full over the course of your repayment plan.
In most cases, the following types of tax debt are considered non-dischargeable and priority, which means a debtor will have to pay them back after filing for Chapter 13 bankruptcy:
income tax debts that do not meet “dischargeable” and “non-priority” requirements;
property taxes incurred within 12 months before the bankruptcy filing date;
payroll taxes and other taxes you had an obligation to withhold/collect;
some excise taxes; and
any penalties that can be treated as “non-dischargeable” tax debts.
Although the tax debts mentioned earlier may not be completely eliminated, filing for Chapter 13 bankruptcy offers an opportunity to gradually pay them off over a period of three to five years. It's important to note that, similar to Chapter 7 bankruptcy, you may be able to discharge income tax debt when filing for bankruptcy under Chapter 13 if it meets the requirements mentioned in the section above.
Taxes in Chapter 11 Bankruptcy
Unlike Chapter 7 bankruptcy, Chapter 11 does not offer as many options for discharging tax debt, whether in part or in full. However, Chapter 11 bankruptcy does provide a similar opportunity to eliminate debts through a repayment plan, much like Chapter 13. The key distinction is that Chapter 11 is designed for businesses and individuals who don't meet the eligibility criteria for Chapter 13.
The dischargeability of tax debt and the extent to which it can be eliminated in Chapter 11 bankruptcy depend on various factors. That's why it's important to collaborate with a knowledgeable bankruptcy attorney who can guide you through the process and explore your options for resolving tax debt.
Rest assured, we understand the challenges you may be facing, and we're here to provide you with the information and support you need to make informed decisions about addressing your tax debt.
How a Bankruptcy Attorney Can Help
Sifting through the complexities of bankruptcy and understanding the dischargeability of tax debts can be challenging. That's where we come in. At EH Law Group, our attorneys don't just pass your work onto others; we handle everything ourselves. We're responsive and experienced, and we pay attention to every detail.
We can assess your financial situation, determine the dischargeability of your tax debts, guide you through the bankruptcy process, and help create a repayment plan that addresses your specific needs. We have over 30 years of combined experience and are dedicated to providing detailed guidance for residents of San Mateo and surrounding areas, including San Francisco, Santa Clara County, Oakland, Daly City, and South San Francisco.