Chapter 13 Bankruptcy

Can IRS Debt Be Discharged in Chapter 13?

You cannot wipe out tax debts when you file for Chapter 13 bankruptcy. You repay your tax obligations over the course of your Chapter 13 repayment schedule, which can last three to five years. There are some exceptions.

Chapter 13 bankruptcy can be a great tool when you are behind in your taxes. It allows you to wipe out old income tax debt. If you have unassailable tax debt, Chapter 13 bankruptcy may offer you a more favorable payment schedule – meaning a lower monthly amount – than you would get from the taxing authorities.


Taxes in Chapter 13 Bankruptcy

Before a Chapter 13 case can be discharged, delinquent taxes have to meet certain requirements. The portion that does not meet the criteria must be paid off in full within a 3- to 5-year plan.

These are some examples of how different taxes will be affected by a Chapter 13 bankruptcy.

Income Tax

You’ll first determine if the tax is based on gross receipts or income. Priority tax is required to be paid in full under the Chapter 13 plan. Nonpriority taxes are lumped together with other unsecured debts (like medical bills and credit card debt).

All non-priority creditors will share the “discretionary” income, or what’s left after subtracting living expenses and payments. (For example, your car and house payment). You may not have to pay your entire nonpriority debt because you only pay your discretionary income.

Visit Your Obligations under a Chapter 13 Bankruptcy Plan to learn more about your plan payment.

What is Business Litigation?

What are Priority and Nonpriority taxes?

If you meet the criteria below, your taxes will not be a priority. Remember, taxes are based on gross receipts or income.

You had to pay your income tax for at least three years, including valid extensions. Your tax return for 2012, for example, was due October 15, 2013 after you had requested an extension. This tax would not be a priority tax if a bankruptcy was filed after October 16, 2016. If you filed your tax return on April 15, 2014, then the taxes are priority taxes for any bankruptcy case filed prior to April 16, 2017.

If you filed your bankruptcy at least two years prior to filing the tax return, that is considered a timely filed return. Some bankruptcy courts hold that if you didn’t file your return on time or if you let the IRS do it for you, those taxes will always be priority.

  • Taxes were assessed (entered in the books as tax liabilities) at least 244 days before your bankruptcy filing. In certain circumstances, this period can be extended.
  • You did not commit fraud, or evade your taxes in the year under consideration.
  • If you do not meet the requirements, your tax is considered a priority and will need to be paid fully in your Chapter 13 plan.


Other Priority Taxes

Tax debts aren’t just limited to recent income taxes. Chapter 13 requires that you pay all taxes.

  • Trust fund taxes are the FICA, Medicare and income tax that you deduct from an employee’s pay.
  • Sales tax collected by customers
  • Certain employment taxes, excise taxed, and custom duties
  • Tax penalties for Non-Dischargeable Taxes
  • Erroneous refunds of tax or credit for non-dischargeable taxes.

You can ask a bankruptcy attorney or the taxing agency about the priority of your tax.

Secured Tax Debts

You will not be able discharge your obligation if your tax debt was a secured liability, meaning that the taxing authority took steps to acquire an ownership interest in the property you own. Here is an example.

Tax liens. – You’ll be required to pay off the tax lien in full over the course of a Chapter 13 plan.

Recent property taxes. Property taxes are usually secured by tax liens on the property. Any balance due must therefore be paid in full under the Chapter 13 plan. Even if there isn’t a tax lien, the claim still has priority if the debt was incurred less than a year prior to the filing of bankruptcy. It’s not a priority claim if it was incurred more than a year before the bankruptcy case.

For more information on your options to deal with tax debts, visit Bruner Wright office today!

Speak With a Jacksonville Chapter 13 Attorney

Explore the fundamentals of Chapter 13 bankruptcy to safeguard your belongings and manage debt gradually. Since Chapter 13 can get a bit tricky, it’s wise to talk to a bankruptcy attorney.

With more than 30 years of expertise, Bruner Wright P.A. is your reliable Florida bankruptcy law firm. Let’s simplify the process for you—reach out for the information you need.

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