Filers of Chapter 13 bankruptcy have the opportunity to discharge tax debt through its repayment plan; in most cases, however, most taxpayers pay them directly through Chapter 13. Tax debt will be eliminated upon the successful completion of this payment plan or discharged entirely at its completion. 

Chapter 13 can involve many taxes, with IRS debt being the most prevalent one. Certain debts may even be discharged through Chapter 13, depending on your age. You could even choose a monthly payment plan option as another way of clearing away some IRS obligations.

Through bankruptcy, property taxes may also be alleviated. By paying off IRS liabilities and property tax payments over time and clearing them away gradually, bankruptcy could help relieve you from these burdens.

In a Hurry? Dial +18-503-850-342 Now!

Chapter 13 Bankruptcy Offers You an Effective Tool to Eliminate Tax Debt

By eliminating old tax obligations and discharging real estate tax debts that cannot be discharged in Chapter 13, bankruptcy becomes an attractive solution. Why would I file for bankruptcy instead of setting up a payment plan with the IRS? 

Because it could offer more favorable repayment terms – meaning less monthly money due.

Filing for bankruptcy could cost more than expected; make sure to evaluate what will be owed when including interest and Chapter 13, trustee fees (which can total as much as 10% of total fees) when making this decision.

Taxes that do not meet specific conditions must be discharged under Chapter 13 bankruptcy proceedings and paid in full with an installment plan lasting three to five years. 

Below Are Examples of How Specific Taxes Might Be Handled during Chapter 13 Filing

Income Taxes

First, you will determine whether the taxes are assessed against gross receipts or income. Priority tax must be fully paid through the Chapter 13 plan while non-priority ones can be aggregated with other unsecured debt (like medical expenses and credit cards).

Nonpriority creditors will share in what’s called your “discretionary income”, the remainder after deducting living costs and payments permitted (such as automobile and home payments). Due to only paying discretionary income towards nonpriority debt, full payment won’t necessarily occur.

Priority and Nonpriority Taxes 

If any of the following apply to you, taxes won’t be treated as priorities:

  • Taxes are calculated based on gross receipts or income and you were required to file income tax returns over several years with valid extensions. Your 2012 return was due by October 15, 2013, with your valid extension filed and could only qualify as priority tax should bankruptcy have been filed after October 16, 2016, but in case it had been filed before April 16, 2017, these would qualify as priority taxes as priority creditors.
  • Filing for bankruptcy two or more years before filing tax returns would constitute timely filed returns, although bankruptcy courts often consider late returns and those filed by the IRS to be priority tax claims.
  • At least 244 days should have passed from when taxes became due until you filed bankruptcy – although in certain circumstances this deadline can be extended further – before declaring bankruptcy. You did not fraudulently or intentionally avoid payment during that year of tax collection.

If your tax falls outside this criteria, however, it must still be included as part of your Chapter 13 plan and paid in full as soon as possible. 

In a Hurry? Dial +18-503-850-342 Now!

Other Priority Taxes 

Chapter 13 obligations extend far beyond recent income taxes alone: all obligations must be satisfied before filing bankruptcy. Trust fund taxes include:

  • FICA
  • Medicare
  • income taxes 

Withheld from an employee’s wages, FICA, Medicare, and income taxes are considered withholding payments made to you as their employer. Additionally, customer-collected sales taxes from transactions, as well as employment, excise, and customs duties, may be classified as non-dischargeable tax penalties if they remain outstanding at the end of the year. Correct refunds or credits for non-dischargeable taxes may be available. Please consult a bankruptcy attorney or tax agency to explore your options for paying them as a priority.

Secured Tax Debts

In cases where your tax debt was secured by an ownership interest in property owned by you or someone else, discharging responsibility cannot be allowed – both sides involved will take legal action to enforce it and obtain an ownership stake in whatever they can of it from you. Below are two illustrations:

  • Tax liens: Taxing authorities may file a lien if you owe significant taxes and must repay it over time via Chapter 13 payment plans.
  • Recent Property Taxes: Property taxes typically secured with tax liens must be fully paid within a Chapter 13 plan; even without such security, debt incurred within one year before filing remains a priority claim; otherwise it does not take precedence over other claims that may come up during that same timeframe.

Tax Debt & Back Taxes will inform you about all available solutions to address your tax debts.

Can IRS Tax Debt Be Discharged under Chapter 7 Bankruptcy?

Yes. Usually, the tax must have accrued over three years ago and fulfill certain conditions; once eligible it will be erased alongside all eligible debt. Since requirements vary by state, it’s best to get advice from a bankruptcy attorney.  Tax debts in Chapter 7 Bankruptcy provides more details on how you can discharge tax obligations via bankruptcy.

Summing Up!

Are you struggling with tax debt? Chapter 13 bankruptcy could provide the relief you’ve been searching for by offering structured repayment plans and discharging certain tax obligations, like IRS debt, or priority tax liabilities like property tax liabilities or personal income tax debt. 

Bruner Wright P.A can guide you through this complex process and assist in developing an optimal strategy suited to your unique financial circumstances. Contact Bruner Wright now for a consultation and take the first steps toward financial freedom!

In a Hurry? Dial +18-503-850-342 Now!