It is estimated that Americans will pay $3.3 trillion in federal taxes and $1.5 trillion in state and local taxes this year, making tax one of the largest financial burdens facing our citizens. According to the Tax Foundation, Americans work several months every year in order to pay its annual tax bill to Uncle Sam.
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its federal, state, and local taxes for the entire year. In the early 1900s, this day occurred on January 20, but this has gotten worse over time. For 2015, this day came on April 24, or 114 days into the year. Ohio ranks #23 in the nation for its Tax Freedom Day.
This tax load is a contributor to debt for Americans. The Tax Foundation notes that Americans spent more on taxes in 2015 than on food, clothing, and housing combined. Equal to roughly 31% of the nation’s income, tax burdens push many households to financial insolvency and to consider filing for bankruptcy.
If tax woes are adding to an already difficult financial burden, bankruptcy may be a solution you should consider. While, generally, you can’t discharge tax debt in bankruptcy, there are some exceptions where you may be able to discharge taxes that are more than three years old. And by discharging your other debts, bankruptcy may put in you a position to meet your taxes. In any case, it pays to consult with a bankruptcy lawyer who knows whether the intricacies of tax laws can work in your favor.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can happen to anyone. We offer a free consultation to evaluate your financial situation with the IRS, the State of Ohio, and whatever additional debt problems you are facing, and come up with a debt-relief plan that’s best for you.
Bankruptcy and Taxes
There are two major forms of bankruptcy, Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy has the power to discharge (eliminate) most or all consumer and/or business debts so they no longer have to be paid. Chapter 7 bankruptcy is over in a few months, so you can begin rebuilding credit quickly. To see if you are eligible for Chapter 7, your income and debt will be subjected to something called a “means test.” If you are not eligible for Chapter 7, filing for Chapter 13 may still be an option.
A Chapter 13 bankruptcy consolidates your debts and allows you to repay some or all of your debt affordably over a three- to five-year period. If you successfully complete the court-approved payment plan, the debts covered by the plan are discharged.
Most tax debts can’t be wiped out in bankruptcy — you’ll continue to owe them at the end of a Chapter 7 case, or you’ll have to repay them in a Chapter 13 repayment plan. However, IRS and Local tax debts may be dischargeable through the bankruptcy if the tax debts meet certain qualifications.
Chapter 7 — Income taxes may be discharged in Chapter 7 bankruptcy if all of the following conditions are true:
- The taxes are income taxes. Other taxes, such as payroll taxes cannot be discharged.
- You did not commit fraud or willful evasion of paying taxes.
- The debt is at least three years old.The original tax return filing due date was at least three years prior to filing for bankruptcy.
- You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
- The 240-day rule — The income tax debt must have been assessed by the IRS at least 240 days before the bankruptcy petition was filed, or must not have been assessed yet. (The limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
Chapter 13 Bankruptcy
You may choose to file for Chapter 13 Bankruptcy if it is better for your situation or if you don’t qualify to file for Chapter 7. The good thing about Chapter 13 is that tax debts determined to be priority may be paid back through your repayment plan over time. Priority tax debts may include tax liens, sales taxes, withholding taxes, some employment taxes, certain tax penalties, and erroneous tax refunds.
The Income Tax debts that are considered non-priority must meet the same qualifications as for Chapter 7 listed above.
Federal Tax Liens
Even if your taxes qualify for discharge in a Chapter 7 bankruptcy case, be aware that bankruptcy will not wipe out prior recorded tax liens. You will no longer have a personal obligation to pay the debt, and the IRS will not be able to go after your bank account or wages, but if the IRS recorded a tax lien on your property before you filed for bankruptcy, it stays and will have to be paid off if you sell the property.
Contact Us For Help
Both bankruptcy law and tax law are complicated, so it makes sense to consult with a lawyer who knows the intricacies of the courts, the judges, and the system. The skilled and compassionate Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand what you’re going through and offer a free consultation to evaluate your financial situation and come up with a plan that’s best for you.
Take advantage of our free consultation offer. Contact the experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer for help, information, and support. We will evaluate your entire financial situation, discuss your options, and help you decide on the path to a brighter future that makes sense in your individual case.
Delaying can only make your situation worse, so call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email today to set up your free consultation so we can determine what debt relief solutions will work best for you.