Filing for bankruptcy may be the choice you are compelled to make due to overwhelming amounts of delinquent debts that you have piled up. You may have been told that filing for bankruptcy automatically discharges all your debts and makes you free. That is not true.
If you have resorted to filing for Chapter 7 or Chapter 14 bankruptcy in order to get respite from your tough financial situation, you may be wondering how it affects your tax debts. Give us a minute to explain to you how the process works.
Every tax situation is unique, thus, one rule does not apply to all. The intricacies and unique variables for every case require different approaches. S For this reason, saying that filing for bankruptcy automatically eliminates your tax debts is a misleading and untrue statement because it doesn’t work that way in many cases.
How does Bankruptcy affect your Tax debts?
When you file for any type of bankruptcy, a mechanism is immediately put in place on your behalf. This mechanism is called the “automatic stay,” and it functions to hinder every legal or collection action from being carried out by your creditors. In simpler terms, what this means is that your creditors can not sue you, garnish your wages, or offset your tax refunds.
However, the automatic stay has a few limitations. If you filed for bankruptcy in the previous year and later dismissed it, your automatic stay may not last more than 30 days. However, you may request an extension of your automatic stay from the court.
The automatic stay is also limited in the sense that it covers only the debts that you incurred before filing for bankruptcy. Any debt incurred after you have filed for bankruptcy is not covered and creditors can still legally hold you responsible for it.
It is possible for tax debts to be dismissed under bankruptcy, however, that would depend on the kind of bankruptcy you file and your financial situation.
Filing for Chapter 13 Bankruptcy grants you the opportunity to make a suitable agreement with the court on a workable payment plan for your debt; they, in turn, will dismiss the balances. Filing for Chapter 13 bankruptcy helps you pay less in the debts you owe and gives you access to a better payment option.
Filing for Chapter 7 bankruptcy, on the other hand, can get your entire debt discharged. However, you must meet the following criteria;
- It is an income tax debt
- The debt must be at least 3 years old.
- You did not consciously and willingly get involved in tax evasion or found.
- You filed a legitimate tax return in the two years prior to your bankruptcy filing.
Are you facing tax issues that seem insurmountable? You increase your chances of overcoming them by a thousand percent by hiring a qualified tax relief firm like ours to fight on your behalf. We are a tax relief firm dedicated to giving you the best results regarding resolving your tax debts. Our team of qualified professionals is available round the clock to provide you with the assistance you need. Contact us now at 888-585-8629 or 617-430-4674 or send us an email at [email protected].
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