Can Bankruptcy Eliminate Income Tax Debt?
Bankruptcy can eliminate a host of debts that you are genuinely unable to pay, ranging from credit card debts, medical bills etc. But you have probably heard that income tax debt cannot be discharged by bankruptcy. However, this statement needs to be qualified come to us at Ogden Bankruptcy Attorney.
Depends on Chapter Filed
If you file a Chapter 13 bankruptcy, then your tax debt will be paid off through your monthly payment plan. But if you file a Chapter 7 bankruptcy, then your tax debt will be discharged under certain conditions:
- The Internal Revenue Service (IRS) has assessed your tax debt at least 240 days before bankruptcy filing.
- Your tax debt is at least 3 years old.
- You have filed your tax returns for the past 2 years prior to filing for bankruptcy.
- You have not committed any tax fraud or tax evasion.
If you do not fulfill all the above conditions, then the best way to settle your tax debts is through Chapter 13 bankruptcy.
But if you have a tax lien filed against your property, the lien is not lifted just because you file for bankruptcy explains Ogden Bankruptcy Attorney. If you file for Chapter 13 bankruptcy, you need to settle the outstanding tax debt through your payment plan before the lien can be removed. If you file for Chapter 7 bankruptcy, the lien is generally not lifted unless you satisfy the lien in some way.
Other ways to settle your tax debt include an Offer in Compromise or making an installment payment plan with the IRS. An Offer in Compromise allows you to pay less than your total outstanding tax liability yet receive full discharge. But there are stringent conditions to fulfill in order to qualify for an Offer in Compromise. Hence, the first thing you should do is to apply for an installment payment plan with the IRS by filling and submitting Form 9465 Installment Agreement Request.
What Does It Cost to File for Bankruptcy?
It now costs $299 to file for bankruptcy under Chapter 7 and $274 to file for bankruptcy under Chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you are unable to pay the filing fee in installments, you may request that the court waive the filing fee. If you hire an attorney you will also have to pay the attorney’s fees you agree to.
What Must I Do Before Filing Bankruptcy?
You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget says Ogden Bankruptcy Attorney. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you will need to file with the bankruptcy forms in your case a certificate from the agency stating that you received the counseling.
If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.
Some of the approved agencies offer debt management plans (also called DMPs). This is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. It is important to keep in mind these important points:
- Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
- If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).
- There are approved agencies for bankruptcy counseling that do not offer debt management plans.
It is usually a good idea for you to meet with an Ogden Bankruptcy Attorney before you receive the required credit counseling. Unlike a credit counselor, who cannot give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.
Can I Own Anything After Bankruptcy?
Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out:
- Money owed for child support or alimony, fines, and some taxes;
- Debts not listed on your bankruptcy petition;
- Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
- Debts resulting from “willful and malicious” harm;
- Most student loans, except if the court decides that payment would be an undue hardship;
- Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.
Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.
What Else Must I Do to Complete My Case?
After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney when you should take the course.