Income Tax Debt?

Let Our South Jersey Bankruptcy Lawyers Show You How Bankruptcy Can Provide Relief

photo of a tax return

A popular myth that our South Jersey bankruptcy attorneys hear frequently is that bankruptcy cannot help with income taxes; fortunately, bankruptcy is an excellent way to manage income tax debt.

Dischargeable Income Tax Debt Can Disappear in Chapter 7 and Chapter 13

Some income taxes are completely dischargeable in bankruptcy – meaning that in a Chapter 7 case, you can wipe them out entirely, and in a Chapter 13 case, you may be able to erase the tax liability or may only have to pay a percentage and can wipe out the rest.

Income taxes are dischargeable if:

  • They are actually income taxes, not penalties or other kinds of tax
  • The tax return was due more than three years prior to the bankruptcy
  • You filed the tax return at least two years before the bankruptcy filing
  • The IRS must have assessed the taxes at least 240 days prior to the bankruptcy filing date
  • You did not file a fraudulent tax return or make efforts to willfully evade payment

These are very strict rules, and they are complicated. The attorneys at Jenkins & Clayman can review your tax returns, your tax bills and your payment history to determine whether your taxes are dischargeable in bankruptcy.

Nondischargeable Income Tax Debt is Easy to Repay in Chapter 13

Even if your taxes do not meet the requirements for dischargeability, bankruptcy may still help with tax debt. Filing a Chapter 13 bankruptcy generally will allow you to stop penalties and interest from accruing on the debt and repay the taxes you owe in a structured manner. Non-dischargeable income taxes may fall into one of two categories: priority and non-priority. Non-dischargeable priority income taxes must be repaid in your Chapter 13 plan. Non-dischargeable non-priority taxes, however, are treated the same as your other unsecured debts. They can only be repaid as the other unsecured debts are repaid. If you complete your Chapter 13 plan without completely repaying your non-dischargeable non-priority income tax debts, you’ll still have to worry about repaying them after bankruptcy.

Do Not Sort Out Your Own Tax Debts – Contact Our Bankruptcy Lawyers Today

Tax law and bankruptcy law can both be difficult to understand; having a professional assist you with your income tax debt is the key to getting the best results. Contact our South Jersey bankruptcy lawyers today to discuss your tax debt options in bankruptcy. We serve all of the lower two thirds of New Jersey, and we are here to help you. Call now for a free consultation.