Tax Debts Complicated In Bankruptcy

This week a California man failed to use his bankruptcy to wipe out old state income tax debts. The Ninth Circuit held that his notices to the state don’t amount to tax returns. Those notices weren’t tax returns that allowed him to eliminate his state tax debt as part of his Chapter 7 bankruptcy.  The laws and processes around tax debt and bankruptcy are complicated, and often require the assistance of an experienced Dallas bankruptcy attorney.

When can you eliminate tax debt in bankruptcy?

Tax  debt can be eliminated in bankruptcy only if you can prove that you cannot pay the debt because you do not have the funds to do so. Also, you must be able to demonstrate that you have paid all that you can pay or that you have done everything possible to collect the funds you do have. If you can prove that you can pay the debt and that you have acted responsibly, you will be required to pay the debt in bankruptcy.

How  can you eliminate tax debt in a Chapter 13 bankruptcy?

• You can eliminate tax debts in a Chapter 13 bankruptcy only if you can prove the following:

• You have tried to pay the tax debt and are behind on the payments.

• You can pay the tax debt through your plan payments.

• Bankruptcy will benefit you more than paying the tax debt.

• You can afford to pay other debts such as secured debts, priority debts and regular debts.

How  can you eliminate tax debt in a Chapter 7 bankruptcy?

• You can eliminate tax debts in a Chapter 7 bankruptcy only if you can prove the following:

• You cannot afford to pay the tax debt.

• You have tried to pay the tax debt and are behind on the payments.

• Bankruptcy will benefit you more than paying the tax debt.

• You can afford to pay other debts such as secured debts, priority debts and regular debts.

• You have not filed bankruptcy within the last six years.

Tax  debts are not discharged in Chapter 7 bankruptcy cases. The tax debtor will be responsible for paying the tax debt after the bankruptcy case is over.

Tax debts in bankruptcy are complicated. Let our team of trusted Dallas bankruptcy attorneys review your tax debts and help you make an informed decision about your tax debt relief options.