Tag Archives: priority tax debt

Eliminating tax debts in Chapter 7 and 13 bankruptcy

Two things are certain in our lives, death and taxes! So long as we are still here earning income, we have to pay our taxes, even when we are in bankruptcy. What happens to our tax debt is another question. Despite our best efforts at achieving and maintaining financial success, life happens and sometimes our best option is a fresh financial start, using the U.S. Bankruptcy Code as our life-saving device. When you meet with a bankruptcy attorney, they will calculate your income and financial statements to determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. While Chapter 7 allows you to fully discharge qualified debts, Chapter 13 involves a three to five year repayment plan and a partial discharge of certain debts. You may watch our videos to better understand Chapter 7 and Chapter 13 bankruptcies.

Eliminating tax debts in Chapter 7

In Chapter 7, you may be able to discharge old income tax debt, but most other taxes are non-dischargeable. To discharge old income taxes, you must have filed a valid income tax at least two years ago, for which a return that was due at least three years ago, and the taxes were assessed at least 240 days ago.  Note that any finding of tax fraud or evasion may cause the bankruptcy court to refuse to discharge your old tax debt.

You may not be able to eliminate certain non-income based tax debts in a Chapter 7 bankruptcy discharge. If you have tax liens attached to property that are filed before your bankruptcy. The lien will remain until the property is sold. Property taxes are also non-dischargeable, and nor are certain employment taxes. A bankruptcy attorney at Joseph Wrobel, Ltd. can review your finances and determine which taxes may be dischargeable.

Eliminating tax debts in Chapter 13

In Chapter 13, you repay your tax debts over the period of your repayment plan, between three and five years in most cases. How much of your taxes you will repay depends on the type of tax you owe. Taxes are categorized as priority debt and nonpriority debt. While the priority tax debts must be paid in full during your repayment plan, you may only be required to pay a portion of your nonpriority tax debts.

Priority tax debts must be repaid in full, but in Chapter 13 your priority tax debts can be paid back over the duration of the repayment plan, where the otherwise would have been immediately due. Examples of priority tax debts include tax liens, recent property taxes and withholding-type taxes.

Nonpriority tax debts are not secured by property and are similar in nature to general unsecured debts. In Chapter 13, your priority tax debts are paid first, before the repayment plan pays the nonpriority tax debts. Depending on your finances, you may only be required to repay a portion of your total unsecured debt, which includes these nonpriority taxes. In most cases the nonpriority taxes are again, and as stated above, the old income taxes, assuming the returns were filed and qualify for discharge.

Joseph Wrobel, Ltd. can help you assess your tax liabilities and allow you to determine if taking advantage of Chapter 7 or Chapter 13 bankruptcy is right for you.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start.

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