September 7, 2016 By:
But if you owe a lot of taxes that can’t be discharged, or owe both taxes that can be discharged but also much that can’t, Chapter 13 does the following for you:
If you do have any taxes that would have been discharged under Chapter 7 (generally, older income taxes), these are grouped together with all your ordinary “general unsecured” debts—such as medical bills and credit cards. These types of debts are paid only as much as you have available “disposable income” to do so, only after other higher priority debts are paid. This means that often this category of taxes is paid only a small portion of what you owe, or sometimes even paid nothing.
And if you ARE paying some of your “general unsecured” debts, you quite often are only obligated to pay a certain set dollar amount to this group as a whole. That amount is based on what you can afford to pay during the time you are in your Chapter 13 case, beyond what goes to the higher priority creditors. This means that if you owe older federal income taxes that are in this category, these taxes often do not add a penny to the amount you must pay in your Chapter 13 case. The taxes just reduce the amount the other “general unsecured” creditors receive, without costing you any more than if you didn’t owe those taxes.
Also, since “priority” taxes are paid in a Chapter 13 case before and instead of “general unsecured” debts, this often means that your “priority” taxes simply reduce the amount of money which would otherwise have gone to the “general unsecured” creditors. Under these circumstances, remarkably your tax debt would not increase the amount that you would have had to pay in a Chapter 13 case. Talk to your attorney to find out if this aspect would apply to you.
If you owe a large amount of federal “priority tax,” Chapter 13 will usually make dealing with your taxes much more manageable. Although a Chapter 7 case can write off some income taxes, if you owe more recent income tax, or multiple years of taxes, Chapter 13 is often the best option.
minefield. I’m Carrie Weir, a highly experienced Texas bankruptcy lawyer. I serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please contact me for a free and confidential consultation. Please either just call me at 972-772-3083 or use the contact form here. Thank you.