Will Bankruptcy Discharge My Tax Debt?
When you find yourself in over your head with debt you’re not able to pay, you may consider filing for bankruptcy. While this may seem like a drastic step, for some people, it will be the right choice to get them back on the road to a stable financial future. In 2022, nearly 3,500 individuals in Georgia filed for bankruptcy, according to the bankruptcy court of the Southern District of Georgia. However, when starting out, most people don’t have a clear idea of what bankruptcy really entails and specifically what debts it can wipe out and which it can’t. While bankruptcy can provide a significant amount of relief, there are some debts that won’t be affected, and this is especially true when it comes to tax debts. If you’re in the Savannah, Georgia, or Hinesville, Georgia, area and would like to meet with a bankruptcy attorney about your financial situation, call me, John E. Pytte | Your Georgia Debt Relief Specialist. I have the resources, knowledge, and practice to advise you of the best options for your circumstances. I can also serve clients in Chatham County, Liberty County, Bryan County, Effingham County, and Long County, Georgia.
Taxes in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is one of the most commonly used types for individuals. Also called “liquidation bankruptcy,” this approach requires individuals to sell off their non-exempt assets and use these proceeds to pay down debt before their remaining debt can be discharged. That said, the vast majority of those who file chapter 7 get to hold on to all their assets. There are also income requirements that you have to stay under in order to qualify for chapter 7. Common discharge debt using this method are credit cards, medical bills, personal loans, back rent, and in some cases, back taxes. The only tax debt that can be discharged under Chapter 7 is income tax, but it must be at least three years old, free from fraud or tax evasion, and you must have filed a return for the tax you’re hoping to discharge.
Taxes in Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also available to individuals and is commonly referred to as a “wage earners” plan because it’s designed for those who make too much money to qualify for chapter 7 and those who want to protect their assets. With this type, you aren’t required to sell your non-exempt assets but instead must establish a repayment plan that you’ll follow for three to five years. After this time, if you’ve made all payments, the remaining discharge debt will be wiped out. Under chapter 13, the same taxes have the potential to be discharged as with chapter 7, and they may even be discharged before being factored into your repayment plan. You may also be able to include non-dischargeable tax into your repayment plan.
Taxes in Chapter 11 Bankruptcy
Also called “reorganization” bankruptcy, chapter 11 is primarily for businesses and allows them to stay operational while committing to a repayment plan with their creditors. During this time, the business must continue to file their taxes, and while they’re also permitted to receive a return, the IRS may hold some or all of the return to pay down past-due debts. However, because most dischargeable tax debt is based on income tax, many corporations may not find tax relief through bankruptcy.
How a Bankruptcy Attorney Can Help
Whether you’re an individual or a business, anytime you’re considering filing for bankruptcy, you should meet with an experienced attorney. These filings can be complicated, and a skilled bankruptcy lawyer can help you understand your options, locate and organize all applicable documentation, then help you execute a plan that’s specifically tailored to your needs and goals.
Clear & Compassionate Legal Guidance
Call John E. Pytte | Your Georgia Debt Relief Specialist, today to learn more about your options for bankruptcy. I have been helping clients for over 25 years with debt relief matters look toward a brighter future. My offices are in Savannah, Georgia, and Hinesville, Georgia, but I can also represent those living in Statesboro, Richmond Hill, and Ludowici.