A common question that arises when people are considering filing for bankruptcy is whether their tax debt will be dischargeable.  While most tax debt is not dischargeable, there are some circumstances under which it can be.

The attorneys at Fesenmyer Cousino Weinzimmer specialize in bankruptcy and have helped thousands of people in Ohio with debt relief.  We will help you better understand your financial situation and determine what debt relief plan is best for you during your free consultation.

Contact us online or call our offices today to set up your free consultation.

Overview of Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 bankruptcy is often the best option if your income is too low to pay credit card bills, medical bills, , payday loans, or personal loans. The process is over in a few months, so you can begin rebuilding credit quickly. While a Chapter 7 bankruptcy Trustee may  be able to sell property to help pay off creditors, there are Ohio bankruptcy exemptions that list types of property that cannot be sold.  Exemptions can include your home, clothing, cars, pensions, alimony, child support, equipment used for work (like tools), and household furnishings. If you do not own a great deal of property and your property falls within the bankruptcy exemptions, you  will be able to keep your home, car, and other items from being liquidated.

Not everyone is eligible for Chapter 7 bankruptcy protection. Your income and debt will be subjected to something called a “means test” to determine whether you qualify. If you are not eligible for Chapter 7, filing for Chapter 13 may still be an option. A Chapter 13 bankruptcy can also be an option to allow you to keep assets that are not exempt in a Chapter 7 bankruptcy.

Chapter 13 bankruptcy provides a payment plan to repay your debts over a three- to five-year period, after which you will receive your discharge. . While some debts are nondischargeable under a Chapter 13 bankruptcy plan, most debts can be discharged after completion of the Chapter 13 plan payments. You are expected to pay as much as you can toward those debts during the duration of the bankruptcy plan. However, the amount you will pay is likely to be less than you would have owed if you hadn’t filed for Chapter 13 bankruptcy.  Any tax debt that is not paid in full through the Chapter 13 bankruptcy would remain, unless it falls in the specific category of a dischargeable tax.

Bankruptcy protection may help you escape a terrible financial position. But before you decide to take this step, you need to understand what taxes you will owe and what taxes can be discharged. Contact our law firm at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) to discuss these issues with an experienced bankruptcy attorney.

Tax Debt Reduction and Bankruptcy

IRS, state, and local tax debts may be dischargeable through Chapter 7 bankruptcy if these debts meet certain requirements:

  • The taxes are for federal or state income taxes or taxes on gross receipts.
  • The return was due (including all valid extensions) at least three years before filing for bankruptcy.
  • The tax return was filed at least two years before filing for bankruptcy.
  • The tax assessment was at least 240 days before filing for bankruptcy unless there was a compromise offer with you or you had previously filed for bankruptcy.
  • There was no fraud or willful evasion of taxes.

For Chapter 13, income tax debts are treated as non-priority debts and must also stand up to the same tests as those under Chapter 7.

Nondischargeable Tax Debts

Some examples of tax debts that are not dischargeable include:

  • Recent income tax debts within 3 years.
  • Tax liens.  Tax liens, also known as secured taxes, will remain if they were recorded against your property before you file for bankruptcy.
  • Taxes that a third party is required to collect or withhold. This includes taxes such as FICA, Medicare, income taxes that an employer must withhold, and sales taxes paid by customers.
  • Certain employment taxes, excise taxes, and customs duties.
  • Non-punitive tax penalties on nondischargeable taxes — if the penalty occurred less than three years before filing for bankruptcy.
  • Erroneous tax refunds or credits relating to non-dischargeable taxes.

Also, tax debts that arise from unfiled tax returns are not dischargeable in either a Chapter 7 or Chapter 13 bankruptcy.

If you file for Chapter 7, you will still be responsible for repaying these debts after your discharge. If you file for Chapter 13,the non-dischargeable tax that is not paid through the plan will remain at the end of your case.

Contact Us and Get Help

Determining whether or not tax debts can be discharged during bankruptcy is complex, so it pays to get legal assistance. The experienced and compassionate lawyers at Fesenmyer Cousino Weinzimmer are trained to identify these tax issues. We offer a free consultation during which we can examine the facts of your situation before filing, to help you make informed and educated decisions.

During your consultation, we will evaluate your entire financial situation by looking at your income, your debts, and your goals.  We will make sure you are aware of all your options and help you decide on the path to a brighter future that makes sense in your case.

Delay in contacting an experienced bankruptcy lawyer can only worsen your situation. Contact us online or call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) today to set up a free consultation to determine what debt relief solutions will work best for you.

Attorney Tom Fesenmyer

Attorney Thomas M. Fesenmyer (Tom) is dedicated to helping his clients solve their financial issues in a timely and cost-effective manner. Tom has personally filed several thousand cases and has the expertise to achieve immediate results for his clients, including stopping Foreclosures, Repossessions, Wage Garnishments, Law Suits, Utility Shut-offs, Creditor Harassment, Bank Attachments, and Pay-Day Loans. Tom’s goal for all of his clients is asset protection and debt elimination.[ Attorney Bio ]

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    Chapter 7 Bankruptcy and Taxes

    A common question that arises when people are considering filing for bankruptcy is whether their tax debt will be dischargeable.  While most tax debt is not dischargeable, there are some circumstances under which it can be. The attorneys at Fesenmyer Cousino Weinzimmer specialize in ba...