When you are struggling to pay off your tax debts, you may consider chapter 7 as a way to discharge your debts. However, chapter 7 is not able to discharge tax debts and there's a different form of bankruptcy you should consider looking toward: chapter 13. This form of bankruptcy can make it much easier to pay off your debts.
Chapter 13 and Your Debts
Chapter 13 bankruptcy does not immediately discharge the debts you hold. Instead, this form of bankruptcy must be paid through a payment plan. Under chapter 13, the penalties for failing to pay stop accruing. You will still need to pay the accrued interest from before you filed for bankruptcy, but not afterward.
If you choose the Chapter 13 payment plan, you'll pay the administrative fees for filing for chapter 13 first. After you have paid the administrative fees, the next step is to begin paying off the taxes and prior interest based on your disposable income. You may be able to discharge debts after a set period of paying debts.
The advantage of Chapter 13 is that you do not have to risk having your property liquidated. It is considered a wage earner's bankruptcy because you will simply be using your disposable income after you have paid all of your necessary bills to pay off debts. You must submit a plan to the court that shows how much you will pay a trustee to pay down your debts as well as how much your creditors will receive. The payment plan can last three to five years and the debtors will be paid a portion or all of what they are owed.
Priority Vs. Non-Priority Tax
Some of your taxes are considered priority or non-priority debts. If the taxes are older than three years, they are considered non-priority. You will also need to have filed your tax return in a timely manner. If you did not file your tax return, the debts will be considered priority forever according to many bankruptcy courts.
While income tax can be non-priority, there are other forms of taxes that are always priority. Trust fund taxes, employment taxes, and erroneous tax refunds or credits cannot be discharged. You will also not be able to discharge secure tax debts. For example, if you have a tax lien, you'll not be able to discharge the debt. While tax debts might seem overwhelming, they can be less overwhelming when you know the right way to approach them.
For more information, contact a bankruptcy attorney service like Price James S & Associates.