Tax Issues and Bankruptcy
Tax debt can create serious financial pressure, particularly when it is combined with credit card balances, medical bills, collection activity, or other financial obligations. Although bankruptcy does not eliminate every type of tax debt, certain tax obligations may be addressed through bankruptcy when specific requirements are satisfied.
A bankruptcy attorney in Chicago can help you understand how Chapter 7 or Chapter 13 may affect your tax debt and other financial obligations.
Can Tax Debt Be Discharged in Bankruptcy?
Some older income tax debts may qualify for discharge in bankruptcy, but strict requirements generally apply. Factors that can affect whether a tax debt is dischargeable include the type of tax, when the return was due, when it was filed, when the tax was assessed, and other circumstances.
Recent tax debts and certain other tax obligations generally cannot be discharged simply by filing bankruptcy.
Because tax issues can be complicated, the specific history of each tax obligation should be reviewed before determining how it may be treated.
Tax Debt and Chapter 7 Bankruptcy
Chapter 7 bankruptcy may discharge certain qualifying income tax debts when applicable legal requirements are satisfied.
Even when a tax debt itself qualifies for discharge, additional issues such as tax liens may affect the outcome. Other debts that do not qualify for discharge may remain after the bankruptcy case is completed.
Tax Debt and Chapter 13 Bankruptcy
Chapter 13 bankruptcy may provide eligible individuals with an opportunity to address certain tax obligations through a court-approved repayment plan.
Different types of tax debt can receive different treatment under a Chapter 13 plan. Some tax obligations may need to be paid in full, while qualifying older tax debts may be treated differently depending on the circumstances.
Tax Liens and Bankruptcy
A tax lien can create additional considerations. Discharging personal responsibility for a qualifying tax debt does not necessarily eliminate an existing lien against property.
The treatment of a tax lien depends on factors such as when the lien was recorded, the type and value of property involved, and the bankruptcy chapter being used.
When to Explore Bankruptcy Options
You may want to learn more about bankruptcy if you are dealing with:
- Past-due income taxes
- IRS or state tax collection activity
- Tax liens
- Wage garnishment or account levies
- Tax debt combined with credit card or medical debt
- Other overwhelming financial obligations
Bankruptcy is not appropriate for every tax problem, and timing can significantly affect how a tax obligation is treated.
Explore Your Tax Debt and Bankruptcy Options
If tax debt has become difficult to manage, understanding how bankruptcy may affect those obligations can help you evaluate your next step.
Consider speaking with a Chicago bankruptcy attorney about Chapter 7, Chapter 13, tax debt, tax liens, and other financial obligations that may affect your bankruptcy options.
