Have you been filing your income tax returns in the past? Whether or not you’ve done so in the past may affect your eligibility to file a Chapter 7 or Chapter 13 bankruptcy. While not filing taxes may still allow you to receive a bankruptcy discharge in a Chapter 7 case, you won’t be eligible to apply for Chapter 13 if you haven’t filed your tax returns in the past four years. This article will help you understand what you need to know about taxes when considering bankruptcy.
At the Rollins Law Firm, We require our clients to provide copies of their tax returns prior to filing a bankruptcy case. Whenever a case is filed, we must provide a copy of the debtor’s tax returns to the bankruptcy trustee. The needed tax returns differ depending on which type of bankruptcy is being filed.
In a Chapter 7 case, we provide the trustee with the last two tax returns filed by the debtor. Since not everyone is required to file a tax return every year, it may not be the preceding two years that must be turned over. If, on the other hand, the client has never been required to file tax returns, then we must provide a statement to that effect. Have you been required to file a tax return but didn’t? Don’t worry, our Jackson Mississippi bankruptcy attorneys can still assist you in moving forward with your chapter 7 case and receiving a discharge.
Chapter 13 cases are a little different. You are ineligible to file a chapter 13 case if you have not filed all of the required tax returns for the last 4 years. You will not be penalized if you were not required to file a tax return. But if you were required and you failed to do so, then your bankruptcy case will be dismissed. The trustee will usually give debtors 60 days to get a tax return filed. Our law firm has a policy that we will not file a chapter 13 case with no attorney’s fees paid upfront if the debtor has failed to file a tax return required tax return in the last 4 years. If you have not filed a required return, but still want to move forward with a chapter 13 case immediately then you will be required to pay some of the attorney’s fees prior to filing.
Bankruptcy Can Solve Tax Problems
Chapter 7 Bankruptcy
While it is true that most taxes cannot be discharged in bankruptcy, there are other ways that we can help someone deal with tax debts. Sometimes people that otherwise wouldn’t qualify for chapter 7 because of their income will qualify for chapter 7 due to the large amount that they owe to the IRS or Mississippi Department of Revenue. Even though the taxes will not be eliminated in chapter 7, most other unsecured debts will be eliminated and that will free up income for our clients to work out a payment arrangement with the Internal Revenue Service. A chapter 7 case will also temporarily stop the collection of taxes and give our clients some breathing room to get their finances in better shape.
Chapter 13 Bankruptcy
Chapter 13 can also be very useful in eliminating taxes. Most Taxes cannot be eliminated in chapter 13 either, we can reorganize your debts to prioritize paying back the taxes while often times eliminating other types of debt. In a chapter 13 case, we take all of your debt and wrap it up into one monthly payment that covers almost everything. Instead of paying your monthly bills yourself, you will pay a bankruptcy payment each month instead. At the end of the case, our clients are usually debt-free except for their mortgage and/or student loans if they have these types of debts. A huge benefit received in chapter 13 is that all penalties and interests are halted. You get to pay back the amount you owe without interest increasing the balance.
Dischargeability of Income Taxes In Bankruptcy
Income taxes can be eliminated in some situations. This is very technical so it might be best to hire our experienced bankruptcy lawyers to figure this out for you. First off, this only applies to income taxes. Payroll or sales taxes are never dischargeable in bankruptcy. In order to be eligible for discharge, the taxes must have been incurred over 3 years ago. You must have filed your return over 2 years ago and you must have filed your return on time. A late-filed return will always result in the taxes being non-dischargeable. If you got an extension though, then that would not be considered late. The taxes must have been assessed over 240 days ago.
Finally, if the IRS has evidence that you committed fraud or willfully evaded filing taxes (both of these are crimes) then these taxes cannot be dischargeable. It is common for us to discharge some tax debts in both chapter 7 and chapter 13 if the client has owed taxes for many years. Our Jackson Mississippi Bankruptcy Lawyers have the experience to help you deal with your income tax debts.
Other Types of Taxes
Tax liens are treated as secured debts in bankruptcy. Even if the taxes are discharged a lien can still be valid after the bankruptcy filing. It is possible to pay off the lien in chapter 13 or sometimes void the lien in chapter 7. It is important that you get advice from experienced bankruptcy lawyers like The Rollins Law Firm.
Property taxes cannot be eliminated in bankruptcy if your goal is to keep your property. Many people file for bankruptcy with the primary goal of keeping their homes. If you owe property taxes, they must be paid in order to keep your home. Bankruptcy can help eliminate your other debts so that you can focus your attention on paying your property taxes.
Sales taxes and payroll taxes are the most difficult taxes to deal with in bankruptcy. These types of taxes cannot be discharged. The most we can do is stop the penalties and give you a payment plan to pay them back at 0% interest.
Call for a Free Consultation!
Our Biloxi, MS Bankruptcy Lawyers can help you eliminate your taxes. Bankruptcy is often times the first step toward a life without financial stress. Our office is located in Gulfport, Mississippi but we help clients in D’Iberville, Madison, Jackson, and Laurel, Mississippi. Call today to find out how we can help you get your life back on track.