Bankruptcy Can Help You Manage Tax Debt
Few forms of debt are as stressful and potentially damaging as tax debt. Many individuals who have large amounts of debt don’t realize that, in many cases, filing for bankruptcy can help them manage both consumer debt and tax debts. Below, learn about the ways that a bankruptcy filing can provide help in managing past-due taxes and penalties, and contact a California bankruptcy attorney with any additional questions.
Not all past-due taxes are exempt from discharge
While most of a petitioner’s debts will be wiped clean in a Chapter 7 bankruptcy filing, some debts are ineligible for discharge. These debts, known as “priority debts,” include income tax debts from recent years. What many people don’t realize is that older tax debts are not always considered priority debts. These debts may, in fact, be eligible for discharge in a Chapter 7 bankruptcy. Tax debts can be eligible for discharge where the tax return on which the debt is based was due to be filed over three years ago, and you filed that return over two years ago. Additionally, a tax debt that has become secured through the filing of a lien against your property by the IRS or California franchise tax board may further affect your ability to discharge the debt.
Bankruptcy’s automatic stay can prevent a tax debt from becoming a secured debt
Since older tax debts can evolve from unsecured to secured through the filing of a lien (affecting whether you are able to discharge the tax debt), it’s important to take action on your debts before a lien is filed. Fortunately, the automatic stay provision of bankruptcy can be helpful in preventing a lien from being filed. Any debt collection efforts, including the filing of liens or lawsuits against you or your property, are put on hold while the bankruptcy case is open. If you’ve filed for bankruptcy under Chapter 7, this stay will only last a few months, which could be enough time for you to find a way to manage the debt. If you think you’ll need more time to develop a plan to respond to past-due tax debts that can’t be discharged, the much longer stay afforded through Chapter 13 may make that form of bankruptcy a more appealing option for you. A seasoned bankruptcy attorney can help you decide which type of personal bankruptcy best fits your needs.
For assistance with responding to mounting debt or the prospect of lawsuits based on unpaid bills, contact the dedicated and professional Ventura bankruptcy lawyers at Rounds & Sutter LLP for a free consultation at 805-650-7100.