bankruptcy income taxes

bankruptcy income taxes

As we enter into another tax-preparation season, we are already quite a few calls from potential customers, the receivers also have tax problems.Income Taxes particular problems and problems with present when it regulated by Article bankruptcy.This brief summary of these complicated rules that the taxes for those who Insolvency Register.

As we enter into another tax-preparation season, we are already quite a few calls from potential customers, the receivers have got tax problems. Income taxes present special problems and issues when it comes to bankruptcy. This article is a short summary of this complicated rules, taxes for those who The Bankruptcy Discharge bankruptcy.The file

In bankruptcy, is a "discharge" the elimination of debt. The goal of either a Chapter 7 or Chapter 13 Bankruptcy is obtaining a discharge of your unsecured debts. However, not all unsecured debts are dischargeable. Examples of non-dischargeable debts are student loans, for Children and most taxes. But while most taxes are not dischargeable, in some cases, the taxes are.

Bankruptcy discharge of taxes

In some cases, bankruptcy may be an effective way of dealing with the past by the federal and state income tax debts. Under the Bankruptcy Code, is whether a tax is dischargeable by determined if the tax became due. If a debtor bankrupt owes state or federal income taxes are dischargeable, if the debtor and its tax return filed:

  1. 3 year rule: The tax return has been through more than 3 years ago the bankruptcy declaration. (If the debtor has obtained an extension of the due date) would be the extension period, and
  2. 2 year rule: the Debtor's income tax return was actually more than 2 years before the date of its debtor files for bankruptcy, and
  3. 240 Day Rule: The Taxes were assessed by the IRS or Massachusetts DOR more than 240 days before the bankruptcy filing and was
  4. The debtor has not file a fraudulent return or intentionally trying to evade the payment of taxes.

When an obligor satisfies all of the above criteria, so their income tax liability is dischargeable. However, it is important to remember that these rules apply only to individual taxes. Furthermore, in Chapter 7 bankruptcy, if the underlying tax Dischargeable obligations, interest and related penalties are dischargeable. However, if the underlying obligation is not dischargeable, then all associated Interest and penalties.

Tax Lien in a Chapter 7 Bankruptcy

If the IRS of Massachusetts DOR has already recorded a lien on your property, then their debt is secured, and in case of bankruptcy, Chapter 7, the tax can not be dismissed, even if a defendant meets all the above conditions. However, it can be judged only record the lien against the property, the lien. For example, if you owe the IRS $ 10,000.00 in taxes and you meet all the qualifications and the IRS records the lien against the property is only worth $ 5,000.00, in accordance with the bankruptcy, the IRS did not record a lien on another property that you . have Furthermore, if the IRS sells the property, recorded that their lien against, the balance that you owe is unloaded.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, a bankruptcy debtor makes payments to a bankruptcy trustee for a period of 3 to 5 years. The trustee in turn pays the debtor creditors for a repayment plan, or "Chapter 13 Plan." Some claims are paid in full, such as mortgage arrears, and certain "priority Debt and general unsecured debt (to be paid, for example credit cards, personal loans and medical bills) with what is left over for a Fraction of their value.

In Chapter 13 Bankruptcy, taxes are treated as priority debt, which means that they must be paid before all other debts, and like all senior debt, they must be paid in full through the Chapter 13 plan. But consider an income tax in order to give priority the tax must meet only the 3-year rule and the 240-day rule. If the debtor a bankrupt tax debts that are outside of these two rules, that is, debt as a general unsecured debt and the tax liability has, will be treated like other unsecured debts of the debtor and thus be dismissed. However, if the Bankrupt debtor does not satisfy these two rules, the tax liability is considered a priority debt, and it must be repaid in full through the Chapter 13 plan. If the debtor fails to repay 100% of their principal debt through the Chapter 13 bankruptcy, they must convert their debt to a Chapter 7 bankruptcy.

Another important consideration for Chapter 13 debtor is the accrual of penalties and interest. The filing of a Chapter 13 bankruptcy will stop the IRS and the Massachusetts DOR from assessing additional sanctions and stops the acquisition of interest.

Tax-lines in a Chapter 13 Bankruptcy

Another aspect in a Chapter 13 is a tax lien. If the IRS has registered one of Massachusetts DOR tax lien against the property of the debtor for unpaid taxes that the Debt is secured debt and can not be fired, even though the tax would have qualified for the discharge under 2 years and 240 days rules. However, if the amount of the lien, the value of the property, which is the lien attached to this report exceed a debtor can obtain relief from the bankruptcy judge and touched the proportion of the lien, that the value exceeds the property, known to cram something down as "." The proportion of the lien, which is then removed, is unsecured.


The bankruptcy rules are complex when it comes to dealing with taxes and tax issues should not be treated by a pro se bankruptcy filer is an inexperienced, or even bankruptcy lawyer. If a debtor has income tax issues, they should with an experienced attorney, the bankruptcy with the bankruptcy rules and tax exemptions for the many familiar.

Dax B. Grantham, Esq. is the Managing Partner at Grantham Cencarik, PC a Cambridge, Massachusetts law firm that dedicates a large portion of its practice to bankruptcy.

bankruptcy and taxes – IRS help – tax information

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