Whether you can file bankruptcy on your taxes depends on many things, including which chapter you’re filing under. If you’re unsure about your obligations come tax season, you could benefit from consulting a lawyer in your area. If possible, you could use bankruptcy to resolve back taxes and other related matters, per the Internal Revenue Service (IRS).
Your lawyer will handle all the details of your case, including preparing and submitting the required forms. Their goal is the same as yours—to get out from under impossible-to-overcome debt and get a fresh financial start.
What Is Bankruptcy?
Bankruptcy is a legal process that lets people and businesses erase debt they cannot foreseeably pay off. Depending on the bankruptcy chapter you file under, your debt can be liquidated, some or all of it can be paid, or you can develop a repayment plan. Chapters include:
- Chapter 7 for individuals and small businesses
- Chapter 13 for individuals, small businesses, and corporations
- Chapter 11 for reorganization bankruptcy
- Chapter 12 for family farmers
Chapter 7 is the most commonly filed chapter, but it is not the only one that could relieve your tax debt. A bankruptcy lawyer can help. They will explain the various chapters you have available and which one best fits your circumstance.
What Are the Benefits of Filing for Bankruptcy?
Virtually any person and many types of businesses can file for bankruptcy. You can file as an individual, married couple, small business, corporation, or farmer. One of the primary benefits of filing for bankruptcy is the automatic stay. It makes it a federal offense for creditors to call or contact you in any manner about your debt while your case is pending.
In addition to this stress relief, additional benefits of bankruptcy include:
- Getting legal relief from overwhelming debt
- Retaining most, if not all, of your property
- Averting a pending foreclosure or repossession
Debt that far exceeds your income can be more than financially stressful; it can impact every area of your life. Filing for bankruptcy can give you much-needed relief and the chance to build a brighter financial future.
For a legal consultation with a lawyer serving North Carolina and South Carolina, call 828.286.3866
How Do I Include Past Due Federal Taxes in My Bankruptcy Case?
According to the IRS, you can include past-due taxes in your bankruptcy filing. Chapter 13 is one of the more common bankruptcy chapters. To get relief from back taxes in this chapter, you must:
- File all required tax returns within four years of your bankruptcy filing
- Continue to file all required returns while your case is pending
- Stay current on your pending taxes as they become due and owing
Failure to meet these guidelines could result in the dismissal of your bankruptcy case, plus you will still owe all past and current taxes. In addition to income taxes, bankruptcy may afford some degree of relief from payroll taxes or tax liens and penalties.
The lawyer who accepts your case will review your tax liability. They will explain in detail which could potentially be discharged and help you set up a repayment agreement to address the remainder.
Can I Still Get a Federal Tax Refund if I File Bankruptcy?
The bankruptcy chapter you choose could play a role in determining whether you can keep your tax refund. The timing of your bankruptcy filing can also figure into your refund. In some cases, you may have to file a bankruptcy exemption.
An exemption allows you to keep some property and assets safe from creditors while your case is going through the court process. If you file under Chapter 7, the exemption prevents the sale of those assets to satisfy previous debt. In Chapter 13, the exemption can let you retain your tax refund and other assets while making affordable monthly payments as part of your repayment plan.
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What Are the Benefits of Hiring a Bankruptcy Lawyer?
You do not have to know or understand the legal process of filing for bankruptcy. If you have a lawyer, they will handle every phase of your case, explaining each step as your case progresses. Your bankruptcy attorney will:
- Review and address your current financial situation
- Explain the best bankruptcy chapter for your circumstances
- Represent you in court and at hearings
- Explain your rights and those of your creditors
- Provide ongoing updates as your case progresses
Working with a lawyer can give you peace of mind and help you avoid potentially costly errors and filing delays. Your lawyer will also handle the documents and files needed to begin and finalize your case.
Will My Lawyer Handle the Confusing Bankruptcy Paperwork?
United States Court regulations require an incredible number of forms and schedules as part of your filing. On your own, it can be difficult to know which forms apply to your case. Once you do know, it can be equally challenging to understand, complete, and file all required forms and schedules.
Your lawyer can handle this challenge for you. They will help you choose the right chapter to file under and identify the right forms that should accompany your filing. Your lawyer will also work hard to file your documents on time, collect the financial information they require, and file them in the proper order.
Call Our Bankruptcy Review Team Today
If you are overwhelmed with debt, including unpaid taxes, our law firm can help you find relief through bankruptcy. We will explain the steps involved in the bankruptcy process that allow you to file for bankruptcy on taxes.
Find out how hard we fight to find a resolution to insurmountable tax liability and other debt. Get started now by contacting one of our bankruptcy team members at Farmer & Morris Law, PLLC.