Taxes and bankruptcy

Taxes and bankruptcy

One of the most important conversations you will have with your bankruptcy attorney is the discussion about tax obligations you may have with the IRS and the Georgia Department of Revenue (GDOR).

Unpaid back taxes are painful; many consumers live in (justified) fear of the power of the IRS to levy bank accounts, place liens on property, and generally bring misery to tax payers who have problems.

But you should know that there is a possibility that unpaid income taxes will be discharged when you file either Chapter 7 or 13 bankruptcy.

It is very important that your bankruptcy attorney understands what types of taxes are dischargeable and can analyze your specific situation to determine if the tax debt you owe qualifies. The general rule is that the unpaid taxes must be older than years old, and you need to have been a ‘good tax filer’ since the years you incurred the debt. (Believe me, there’s much more analysis that goes into this general rule–but I don’t want to bore you!)

If you are an employer, or are self-employed, note that you can’t discharge unpaid medicare and social security taxes.

And even if the are not discharged, you will be able to pay the IRS and the state back over the life of your Chapter 13 plan. Yes, it’s true–your attorney will include the non-dischargeable tax debt in the plan. The Chaper 13trustee will pay part of your Chapter 13 plan payment to the IRS or GDOR on your behalf–no fuss, no muss.

Here’s another silver lining–the non dischargeable tax debt you owe is considered as a factor in your means test. This means that your obligation to pay back taxes might help you qualify for filing Chapter 7 bankruptcy. Ask me why this can be a very good thing.

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