Can Chapter 13 Help You Restructure Income Tax Debts?

Using the Bankruptcy Laws to Address Personal Tax Liabilities

Can Chapter 13 Help You Restructure Income Tax Debts?If you have fallen behind on your taxes, you may be under the impression that you cannot use the bankruptcy laws to help you get a handle on that debt. While it’s generally true that most income tax arrearages cannot be discharged in a Chapter 7 liquidation proceeding, you may still be able to get some relief by filing a Chapter 13 debtor reorganization. With a Chapter 13 petition, you’ll get the benefit of the automatic stay, so that the revenue authorities cannot call, write or take legal action against you. In some instances, you may even be able to obtain a reduction in the total amount of taxes due.

Managing Tax Debt through Chapter 13

Tax obligations that are included in a Chapter 13 reorganization will be classified either as priority debt or non-priority debt. Priority tax debts include:

  • Recent property taxes
  • Any secured tax debt, or any amount subject to a tax lien
  • All withholding taxes you were required to collect for employees, including FICA, Medicare and income taxes
  • Any penalties associated with or levied on non-dischargeable tax debts
  • Excise taxes and customs duties

Most income taxes are non-priority tax debts. To be subject to reorganization, the tax debt must be more than three years old, and must have been reported on a return. That return must have been filed at least two years ago. There must also be no evidence of fraud or willful evasion of tax liability.

Priority tax debts must be repaid in full as part of a reorganization plan. That’s not a requirement with non-priority tax obligations.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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