Are you having tax troubles and financial troubles? Bankruptcy is the answer. How do bankruptcy and taxes correlate? If all the following conditions are met, you can discharge (wipe away) federal income tax debts with bankruptcy. Other taxes, such as income taxes and fraud penalties, cannot be discharged in bankruptcy.
Bankruptcy may be an option if you owe federal taxes past due that you are unable to pay. An offer in compromise or a payment plan with the IRS are other options.
Chapter 13 and Chapter 7 are the most popular type of bankruptcy for individuals. Here are some things to know before you file a Chapter 13 bankruptcy.
- All required tax returns must be filed within four years of the bankruptcy filing.
- You must file all required returns during bankruptcy proceedings.
- You should pay all taxes due during bankruptcy.
- Your bankruptcy case could be dismissed if you fail to file your returns or pay your current taxes.
Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 Bankruptcy are other types of bankruptcy. These chapters cover cases involving personal, business, municipalities, family farmers, fishermen, and international.
Qualifying- Because certain laws restrict access to Chapter 7 bankruptcy for certain consumers, and require certain factors to be met by those filing under Chapter 13, it is possible that you may not always have the option of choosing which Chapter you can file. You must meet the qualifying criteria. It is crucial to know this because you cannot simply select a Chapter and then launch into the process.
Chapter 7 Bankruptcy: Chapter 7 bankruptcy helps debtors with the most urgent debt problems. This is usually reserved for those who have very little or no assets and cannot afford to make monthly payments towards pre-existing debts. To be eligible for Chapter 7, filers must pass the means test, which compares their monthly income with the median Texas monthly income. Chapter 7 is generally available to those whose average monthly income falls below or equals the state’s median income. You will need to calculate if your income is sufficient to pay the monthly payments if it exceeds the state median. You won’t be able to choose Chapter 7 if your disposable income exceeds the state median.
Chapter 13 bankruptcy: This plan is for wage earners. It reorganizes debt and allows filers to make consolidated monthly payments towards them over three to five-year periods. Filers must have sufficient income and funds to pay the reorganization fees. A Chapter 13 bankruptcy does not mean that you won’t receive a discharge. However, this happens at the conclusion of a plan. Filers can also keep certain properties by paying off all or a portion of the pre-existing debt.
The criteria you meet, your financial situation, and your goals for the future will all influence your choice of Chapter of bankruptcy. It can be difficult to understand the unique benefits and how they will affect you. This is why it is important to consult experienced lawyers.
If you are stuck in debt and you could use debt relief from the heavy taxation debt, you should seek assistance from a bankruptcy attorney. A local bankruptcy attorney can help you get rid of some of your debts or lower your interest rates on the tax debt. Although debt relief from taxes can be achieved, it is wise to consult a professional to ensure that you go through the correct channels and proceed accordingly to eliminate the wrong debts. For a free consultation about bankruptcy and taxes, contact us today!