Chapter 13 Bankruptcy / Chapter 7 Bankruptcy / Tax - Debt Garnishments

Using Chapter 13 Bankruptcy to Regain Control of Tax Debt

If you’re seeking a solution to help manage tax debt then Chapter 13 bankruptcy may be something to consider.  It often depends on the type of debt in question, along with other financial obligations of the debtor.  You may even gain an advantage using Chapter 13 to handle the debt that you may not gain from filing Chapter 7 bankruptcy.  Important factors to help determine how Chapter 13 may help you pay down tax obligations includes understanding exactly how much you owe, can any of it be discharged, and whether they are non-priority or priority tax debts.

Tax debt that is considered a non-priority may be paid with other unsecured debts when your repayment plan is developed for review by the bankruptcy court.  The entire amount of this debt may not be eligible for discharge, you may only be required to pay a certain amount or less than what is owed.  There are qualifications the debt in question should meet:

  • The debt should be related to federal and state income taxes.
  • It is past due by three years including any extensions you have received.
  • The tax returns related to the debt has been filed within the last two years.
  • The Internal Revenue Service (IRS) has reviewed or accessed the tax within 240 days of filing for protection.
  • Fraud or tax evasion does not apply to your situation.

On the other hand, priority tax debts can be handled through a repayment plan based on your ability to repay.  Such debts include property taxes, tax liens, and taxes that should have been withheld from employment earnings.  Discuss your situation with an experienced bankruptcy attorney.

 

Reference: http://www.nolo.com/legal-encyclopedia/tax-debt-chapter-13-bankruptcy.html