Although the process is complex, it is possible to eliminate or reduce tax debt through a bankruptcy. Even if you do not qualify to eliminate or reduce tax debt, you can avoid garnishments and protect your home from tax liens by filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.
If you qualify, you can completely discharge all allowable tax debt in a Chapter 7 bankruptcy or enter into a repayment plan for a reduced amount of your tax debt in a Chapter 13 bankruptcy.
Tax debts for bankruptcy purposes are divided into two categories: Priority debts (generally have to be paid in full) and non-priority debts (generally can be discharged or reduced). Non-priority debts come with great benefits, but must first meet specific requirements. The experienced Chicago bankruptcy attorneys at JRQ & Associates are familiar with these requirements, and can evaluate whether your tax debt can be eliminated or reduced through a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.
You should know that before your tax debt can be considered non-priority and dischargeable, it must meet a number of requirements. A bankruptcy attorney at JRQ & Associates can evaluate your tax debt to see if it meets the following:
It must be income tax debt;
You must have filed a tax return for the debt you want to discharge at least two years before the bankruptcy is filed;
The tax return for the income tax debt at issue must have been due at least three years before the bankruptcy is filed;
The IRS must have assessed the income tax debt at least 240 days before the bankruptcy is filed;
You must not have committed fraud or tax evasion.
The requirements for discharging tax debt involve complicated time restrictions, so it is best to consult with an experienced Chicago bankruptcy attorney at JRQ & Associates to determine whether you qualify for a discharge or reduction in your tax debt.
In a Chapter 7 bankruptcy, non-priority debts are completely eliminated, whereas priority debts will still remain a liability after the bankruptcy. You will still have to pay priority tax debt after the bankruptcy is complete, but will have more disposable income available to manage remaining debts. Even if your tax debt does not qualify for a bankruptcy discharge, a Chapter 7 bankruptcy will eliminate most other debts.
By contrast, in a Chapter 13 bankruptcy, non-priority debts are reduced and included in the repayment plan, which is paid off monthly for a fixed number of years. The upside is that priority debts are also rolled into the Chapter 13 repayment plan, which allows you to pay them off over a period of 3 – 5 years without fear of garnishments, liens, or increasing fees and costs. Again, even if your tax debt is considered priority (not qualified for reduction), there are many other benefits to a Chapter 13 bankruptcy that should be explored with an experienced Chicago bankruptcy attorney at JRQ & Associates.
Although not all tax debts are dischargeable, an experienced Chicago bankruptcy attorney at JRQ & Associates can help you maximize the amount of tax debt eliminated through your Chapter 7 bankruptcy or reduced in a Chapter 13 bankruptcy.