04 May How Can Bankruptcy Deal With My Tax Liability?
We’ve all been there – or at least most of us have; running a semi-successful business, going through a divorce or a huge life change of some sort, struggling with an endless stream of expenses that never seem to end and – on top of it all, owing a lot of income taxes that just won’t let us be. When it comes to dealing with income taxes, plenty (you, included) find bankruptcy to be the best option. However, there is a good chance you either have partial or incorrect information about whether and how bankruptcy could help.
Read on through the advice below to get a few things straight and find the best option for your situation:
Bankruptcy Can Write Off Income Tax Debts
Contrary to the popular misinformation, neither does every declaring of bankruptcy permanently discharge an income tax debt nor does this apply to most people. However, If you do meet necessary conditions, a solution may be by claiming bankruptcy. The two primary requirements are:
- Filing bankruptcy after waiting three years after the pertinent tax return was due
- Filing bankruptcy after two years since the tax return was filed
In most cases, the income tax is gone if you meet these two conditions.
Your Solution Is Either Chapter 7 Or Chapter 13
When deciding to file for bankruptcy, you can choose to file under Chapter 7 or Chapter 13. The difference between these two is as follows:
- Chapter 7 comes with a few income and property ownership limitations; however, it eliminates qualifying and unsecured debts which could potentially include tax debt under (in certain situations)
- Chapter 13 allows the filer to keep higher valued property by reorganizing debt. Usually, over a 3-5 year period, a portion of the debt is paid to the creditor. Any remaining debt gets discharged after this time. Further, Chapter 13 is included in the repayment plan, allowing you certain flexibility in re-paying your past due-taxes in a more extended time.
Discharge More Tax Debt Through Wise Pre-Bankruptcy Planning
Timing is everything – in life and bankruptcy. The nature of the conditions that must be met for an income tax debt discharge is such that the longer you wait to file for bankruptcy, the more of your taxes will be discharged. So, the best advice is to wait until more of or all of your taxes can be discharged to file for bankruptcy. Unfortunately, this is not as easy in praxis as it is in theory, mostly for these two reasons:
- First, you are running the risk of being pressured by other creditors to file for bankruptcy, “whether you are paying creditors to keep them happy or because they are forcing payment by suing and garnishing your paychecks and such.”
- Second, before proceeding with the whole thing, you must have a very carefully thought out and researched game plan. There is always the possibility of finding out you can’t discharge a tax that you were expecting to if you wait too long or don’t have all the information
Consult With Experts
If you in the process of filing or are still waiting to put all the pieces together, the best way to find your way around the situation is to consult experts that will know how to advise you based on your specific case. Golden Tax Relief experts have been playing the field long enough to understand every individual case. Talk to us about the situation you are in, and we’ll make sure you leave our offices with a solution!