How can one Eliminate Tax Debts in Bankruptcy?

Be wary if you’ve seen advertising promising to wipe out your tax bills through Insolvency. It isn’t as easy as it appears. Most tax bills aren’t dischargeable in bankruptcy; you’ll still owe the IRS after a Chapter 7 bankruptcy, or you’ll have to return them in full under a Chapter 13 payment schedule. When dealing with tax debts, it’s advised to hire tax law firm Virginia Beach for professional help.

If you need to eliminate tax bills, Insolvency is the preferable option—but only if the tax burden is dischargeable and you are eligible for Chapter 7.

Before you may discharge federal tax in Chapter 7 bankruptcy, you must meet all of the following requirements:

  • Income taxes are levied. Other taxation, such as payroll levies or fraudulent charges, cannot be discharged in bankruptcy.
  • You did not engage in purposeful evasion or deception. Bankruptcy will not help you if you submitted a fake tax return or otherwise knowingly sought to avoid taxation, such as using bogus Social Security information on your tax return.
  • It’s been a minimum of three years since the debt was incurred. Before filing for bankruptcy, the tax return had to be due for at least three years.
  • You completed and submitted a tax return. At most, two years before declaring bankruptcy, you must have submitted a tax filing for the obligation you desire to dismiss. 
  • You’ve completed the “240-day rule.” The IRS must have evaluated your tax liability a minimum of 240 days before submitting your bankruptcy plea, or you will not be able to file it.

There are also additional criteria in some states. For example, in the ninth district, you must submit your tax return on time. A pardon is automatically denied if you file late. Furthermore, if you used a credit card to pay off un-payable tax debt under Chapter 7, the credit card amount will be non-dischargeable as well. 

Like how one would hire a sales tax Virginia Beach lawyer for sales tax requirement, one should hire a professional tax lawyer for tax debts.

A state tax lien cannot be discharged.

If you are eligible for a Chapter 7 insolvency discharge, your win might be heart-wrenching. Why? Prior tax liens will not be erased by bankruptcy. The IRS will discharge your responsibility to pay the qualified tax in Chapter 7 bankruptcy, and the IRS will not be able to seize your checking account or salary. However, if the IRS placed a lien on the property before you filed for bankruptcy, the lien will stay in place. Upon transferring and releasing the homeowner’s ownership to a new owner, you ought to settle off the lien.

Managing Taxes When Filing For Bankruptcy Under Chapter 13

Submitting your tax return may become less complicated once you learn that Chapter 13 bankruptcy is a viable option for dealing with your tax obligation.

Depending on how much expendable cash you possess after your justifiable and necessary costs are taken from your salary, The IRS may pardon deductible taxes with no repayment at all. 

There will be no further interest or penalties if the taxes are discharged.

A Chapter 13 plan can be used to pay off an IRS tax lien.

As long as you incorporate all your due income tax and maintain your tax records and post-petition tax liabilities updated throughout your Chapter 13 arrangement, the IRS is bound by it.

Keep in consideration that any nondischargeable taxes that will not be discharged in bankruptcy must be fully paid throughout the 3- to 5 Chapter 13 program. You’ll be up to date on your taxation and most, if not all, of your other obligations after it’s over.

Unlike Chapter 7, you can dismiss a credit card amount accrued to pay off a nondischargeable tax bill under Chapter 13.