Understanding Tax Debt and Bankruptcy Options
Key Challenges and Concerns with Tax Debt
Taxes are difficult to navigate, and each year tax season brings stress to countless households across the United States.
When you owe money on your taxes, it can feel like an unexpected or unmanageable expense. Many people struggle to make good on the dollars owed from IRS federal taxes or state taxes. Left unpaid, the government can make attempts to collect your debts by garnishing your wages and bank account or by detracting from future tax returns.
Understanding Tax Garnishments and Collections
Financial Freedom Legal has noticed an uptick in Virginia tax debt collection efforts. More people have been reporting garnished wages from state tax debt collectors.
If you’re struggling to pay your taxes, filing for bankruptcy may be the solution for discharging or reorganizing your debts. Bankruptcy can help alleviate financial burdens. Tax debts can potentially be addressed by Chapter 7 and Chapter 13 bankruptcy.
There are certain opportunities to discharge tax debts by bankruptcy without payment depending on how old the debts are, whether your returns were filed on time and what types of taxes you’re paying.
What Happens When Taxes Go Unpaid?
Wage Garnishment and Other Collection Methods
One of the most pressing consequences for unpaid taxes is garnishments from your wages. That is when the creditor—which in this case is the IRS, your state or locality—takes money from your paychecks in order to fulfill overdue payments.
The government is able to more aggressively make collections. For instance, they can take garnishments that make up a larger percentage of your wages than a private lender can.
They can also collect from your bank account, put a tax lien on your home or property, stop vehicle registrations, and withhold your tax returns. Bankruptcy can stop these tax collection efforts.
When your taxes go unpaid, the government does what they can to collect the payments, even if it’s not on your terms or with your permission. This can negatively impact your ability to pay other bills or debts.
Debt collections are intimidating and can leave you feeling optionless. That’s where Chapter 7 or Chapter 13 bankruptcy comes in. Bankruptcy immediately puts a stop to garnishments and other collection attempts. Then you get the opportunity to either discharge or reorganize your taxes and take the next steps towards healthier finances with bankruptcy.
Chapter 7 Bankruptcy: A Path to Tax Debt Discharge?
Can Tax Debt be Included in a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a viable option for people searching for tax debt relief. It won’t work for every debt or necessarily present the best option for every person, but it can be a route to relief through the bankruptcy process.
Tax debts may be discharged through Chapter 7 bankruptcy if they meet certain requirements:
- Your unpaid taxes are income-based
- Your tax return was due at least three years before filing for bankruptcy
- Your return was filed at least two years before filing for bankruptcy
- It has been at least 240 days since your taxes were assessed in the bankruptcy case
- You did not commit tax fraud or evasion during the bankruptcy proceedings
What Tax Debts Are Excluded from Chapter 7 Discharge?
Are Certain Tax Debts Excluded from Discharge?
Yes—you cannot discharge certain business tax debts through Chapter 7 bankruptcy. Following the rules from above, if your debts are too recent, they are not eligible for discharging in bankruptcy. Lastly, if your debts are related to tax fraud or evasion, you cannot use bankruptcy to resolve them.
Can Tax Debt be Included in a Chapter 13 Bankruptcy?
How Chapter 13 Restructures Tax Debt Repayment
Tax debts can be paid through Chapter 13 bankruptcy. By reorganizing your debts through Chapter 13 bankruptcy, you would make one payment each month, typically for a period of three to five years, to cover all of your debts under the bankruptcy plan.
The monthly Chapter 13 plan payment could include your tax debt as well as other forms of debt that are holding you back from reaching financial freedom through bankruptcy.
How Does the IRS Know that You’ve Filed for Bankruptcy?
The Bankruptcy Process and IRS Notification
If the IRS is listed as the creditor when you file bankruptcy, they will quickly be notified about your case. The U.S. Bankruptcy Court usually makes those notices within one to two days.
Finding Relief from Tax Debt with Bankruptcy Attorneys
How to Settle Tax Debts with Financial Freedom Legal’s Bankruptcy Attorneys
If you’re ready to stop government tax collection efforts and get ahead of financial stress, eliminating tax debt through bankruptcy is an option.
Whether you’re liquidating your debts or reorganizing them to fit your current payment capabilities, you can finally feel like your tax debts are under control with the bankruptcy process.
Financial Freedom Legal is a team of expert bankruptcy lawyers serving Richmond and Central Virginia. Our attorneys, Veronica and Steve, have helped countless Virginians recover from tax debts using bankruptcy.
Learn more about our holistic and compassionate approach to helping you resolve unpaid taxes through bankruptcy today.
Get Your Free Consultation Today From The Best Bankruptcy Lawyers in Richmond
When it comes to Financial Freedom Legal, You’re in Good Hands.
You do not have to deal with financial problems alone. Let Financial Freedom Legal do the heavy lifting and relieve you of burdensome debts.
Financial Freedom Legal is a team of expert bankruptcy lawyers serving Richmond and Central Virginia. Our attorneys, Steve and Veronica, have helped countless Virginians recover from tax debts using bankruptcy.
Walk us through your specific financial situation and concerns during a free consultation. During this meeting you’ll get the chance to learn about how bankruptcy can protect you from your creditors and resolve your tax debts.
Learn more about our holistic and compassionate approach to helping you resolve unpaid taxes through bankruptcy today.
Give us a call at 804-FREEDOM to discuss your options during your free consultation.
