When you owe taxes, you might think that filing bankruptcy is an option. However, as your bankruptcy attorney in Acworth will tell you, discharging taxes in bankruptcy is seldom an option. There some critical things you must know about taxes if you are considering filing bankruptcy including:
- Collection efforts – IRS collection efforts are not free from automatic stays. The IRS cannot continue wage garnishments or other actions if you have filed for bankruptcy protection.
- Tax audits – if you are facing an audit from a state taxing agency or the IRS, the audit may continue even if you have filed bankruptcy.
- Payment plans – if you are currently involved in a repayment plan with the IRS or other taxing agency, the payments may be restructured if you are filing Chapter 13 bankruptcy. Remember, the only way the tax is discharged you filed a timely income tax return and then the income tax may be discharged if the tax was due and owing more than three years preceding the bankruptcy filing and there were not any additional tax assessments completed by the IRS within 240 days of filing the bankruptcy petition.
- Tax refunds – if you have already filed your taxes for the year, your refund becomes part of the bankruptcy estate. Before you spend the funds from that refund, talk to your bankruptcy lawyer in Acworth and find out whether you need to notify the trustee of the bankruptcy. If you have not filed taxes yet and are anticipating a refund, let your attorney know immediately.
- Unfiled tax returns – if you have unfiled tax returns, you must advise your bankruptcy attorney in Acworth of this fact. In nearly all cases, you have to file your back tax returns prior to a creditor meeting as it is highly likely the IRS will file as an interested creditor once you file bankruptcy. Any taxes you owe for unfiled taxes as well as penalties will be considered priority and are not eligible for discharge in bankruptcy.
If you already have an agreement with the IRS
For consumers who already have an existing payment plan with the IRS for past due amounts, there may be some relief. If you are filing for a Chapter 13 bankruptcy, you will not incur any additional penalties on your tax amount and the time to pay back amounts owed on taxes could be extended as many as five years. For some, the lack of accruing penalties alone may make filing Chapter 13 worthwhile, especially if the debt is not able to be discharged under Chapter 7.
IRS wage garnishments and bankruptcy
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Once your bankruptcy has been filed, the court will issue an automatic stay. This will prevent the IRS from continuing any wage garnishments for back taxes owed. This means as long as your bankruptcy has not been discharged, the only way the IRS can continue to garnish your wages is to ask the court to lift the stay.
Filing taxes while in bankruptcy
Once you file for bankruptcy, you must file your taxes on time or request an extension. In addition, the trustee assigned by the bankruptcy court will also be required to file a separate return. You are entitled to a copy of those returns and your bankruptcy lawyer in Acworth can ensure you receive a copy.
Dealing with the IRS after bankruptcy discharge
If your tax debt was not included in a Chapter 7 bankruptcy discharge the IRS may once again pursue you for funds you still owe. Your attorney may be able to help you work out an offer in compromise or a payment plan that you can live with. However, the IRS will be able to pursue all remedies including wage garnishment once your bankruptcy is discharged.
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When you meet with your bankruptcy lawyer, make sure that you talk to them about any taxes you owe on a state or federal level as well as any refunds you may have received in the last three to six months or are entitled to receive. If you have questions about the IRS and bankruptcy, contact Roger Ghai, a bankruptcy attorney in Acworth at the Law Offices of Roger Ghai at (770) 792-1000.