Can You Claim Chapter 13 on Your Taxes?
When someone files a bankruptcy and tax debt is owed, most of the said taxes are considered priority debts in bankruptcy. What that means is that you can’t wipe out or eliminate your tax obligation simply by filing a bankruptcy. Instead, the Bankruptcy Code requires that you pay off your tax liability through a Chapter 13 repayment plan.
In a Chapter 13 bankruptcy case, your debt liability can be paid back over three to five years. With that said, some tax debts can be considered non-priority claims. That is, they have to meet specific requirements, such as:
- The tax return was due at least three years before you filed your bankruptcy (including any extensions you received)
- You filed the return at least two years before filing for bankruptcy
- The IRS had not assessed your liability for the tax debt within the 240 days before you filed for bankruptcy (with some limitations/exceptions)
- You did not commit fraud or willful tax evasion
Do I Get To Keep My Tax Refunds in a Chapter 13?
In a Chapter 13 bankruptcy, you are generally allowed to keep your tax refunds. However, if you have a lot of debt, the bankruptcy trustee may want to use all or part of your refund to pay off your creditors.
If you are required to give up your tax refund, the trustee may ask the bankruptcy court to modify your repayment plan. The modification would extend the length of your plan so that you can pay off the amount you owe over time.
People who file bankruptcy before consulting with a tax professional may find themselves in a worse position than before they filed. If you’re considering bankruptcy, we recommend that you develop an attorney-client relationship with an attorney who focuses on both tax law and bankruptcy.
At Bournakis & Mitchell, P.C., we understand that financial problems don’t always have simple solutions. We also know that the decision to file bankruptcy is never easy. But we can help you explore all of your options and figure out the best way to move forward.
Contact an Experienced Bankruptcy Attorney for Your Case
Tax debt can be daunting, so speaking with an experienced bankruptcy attorney is critical. There are, of course, other factors that will determine the treatment of your tax liability in Chapter 13, as well. Don’t wait any longer. Schedule a free consultation with Bournakis and Mitchell, P.C. today, and let us provide you with some debt relief.
This information is not intended to be, nor should be, construed as formal declarations of legal advice.