Bankruptcy is a legal process that can provide relief for individuals and businesses struggling with overwhelming debt. One type of debt that many people have is old tax debt, which can accumulate over time due to a variety of reasons. If you are considering using bankruptcy to address old tax debts, it is important to retain a local bankruptcy attorney in Prattville, or wherever you live, to explain how bankruptcy can potentially help and the limitations of bankruptcy as a solution.
There are two types of bankruptcy that individuals can use to address old tax debts: Chapter 7 and Chapter 13. Here is a brief overview of how each type of bankruptcy can potentially help with old tax debts:
Chapter 7 bankruptcy is a type of bankruptcy that is available to individuals, as well as some small businesses. It is often referred to as a “liquidation” bankruptcy, as it involves the sale of non-exempt assets to pay off debts. If you file for Chapter 7 bankruptcy, the court will appoint a bankruptcy trustee to oversee your case. The trustee will review your assets and debts and will sell any non-exempt assets to pay off your creditors.
One of the benefits of Chapter 7 bankruptcy is that it can provide a fresh start for individuals who are struggling with overwhelming debt. If you qualify for Chapter 7 bankruptcy, you may be able to discharge (eliminate) some or all of your old tax debts. However, there are some limitations on which tax debts can be discharged through Chapter 7 bankruptcy. Specifically, the following tax debts may be dischargeable through Chapter 7 bankruptcy:
- Income taxes that are more than three years old.
- Taxes that were assessed more than 240 days before the bankruptcy case was filed.
- Taxes that were not assessed due to fraud or evasion.
- Taxes that are not dischargeable under other bankruptcy provisions.
It is important to note that not all old tax debts will be dischargeable through Chapter 7 bankruptcy. If you are considering using Chapter 7 bankruptcy to address old tax debts, it is a good idea to consult with a bankruptcy attorney in Auburn, or wherever you live, to determine which of your tax debts may be dischargeable.
Chapter 13 bankruptcy is another type of bankruptcy that is available to individuals. It is often referred to as a “reorganization” bankruptcy, as it involves the reorganization of debts into a repayment plan. If you file for Chapter 13 bankruptcy, the court will appoint a bankruptcy trustee to oversee your case. The trustee will work with you to create a repayment plan that outlines how you will pay off your debts over a period of three to five years.
One of the benefits of Chapter 13 bankruptcy is that it can provide a way to catch up on missed payments on secured debts, such as a mortgage or car loan. In addition, Chapter 13 bankruptcy in Birmingham can potentially help with old tax debts in several ways:
- It can provide a way to catch up on missed tax payments. If you have fallen behind on tax payments, Chapter 13 bankruptcy can provide a way to catch up on missed payments and avoid tax liens or other enforcement actions.
- It can reduce the amount of taxes that you owe. In some cases, Chapter 13 bankruptcy may allow you to reduce the amount of taxes that you owe by discharging some of your other debts. This can free up more money to pay off your tax debts.
- It can stop interest and penalties from accruing. When you file for Chapter 13 bankruptcy, an automatic stay goes into effect, which prevents creditors from taking any collection actions against you. This includes the IRS, which means that interest and penalties on your old tax debts will stop accruing while you are in bankruptcy.
It is important to note that not all old tax debts will be eligible for treatment under a Chapter 13 bankruptcy repayment plan. In order to be eligible, the tax debts must meet the following criteria:
- The tax return must have been due at least three years before the bankruptcy case was filed.
- The tax return must have been filed at least two years before the bankruptcy case was filed.
- The taxes must not have been assessed due to fraud or evasion.
While bankruptcy can potentially provide some relief for old tax debts, it is important to keep in mind that it is not a solution for everyone. Bankruptcy will not discharge all tax debts. As mentioned earlier, there are limitations on which tax debts can be discharged through bankruptcy. If your tax debts are not eligible for discharge, bankruptcy may not provide the relief you are seeking.
If you’re struggling with past tax debts, bankruptcy may be able to help. Both Chapter 7 and Chapter 13 bankruptcy may be able to assist with old tax debts, albeit there are restrictions on which tax debts can be erased or managed under a repayment plan. If you are thinking about filing for bankruptcy to pay off previous tax debts, you should speak with a Montgomery bankruptcy attorney first to establish which type of bankruptcy is best for you and to understand the potential benefits and drawbacks of the bankruptcy process.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, probate, and real estate closings on this website. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply feedback. We appreciate our readers & love to hear from you!