Filing for bankruptcy gives you the chance to start your financial life anew. However, you may be wondering how bankruptcy will impact your tax debts or your tax returns. While an experienced bankruptcy lawyer can cover all aspect of the issue with you, the following are answers to some critical questions about taxes and bankruptcy.

4 Commonly Asked Questions About How Bankruptcy Affects Taxes

1. Are Taxes Discharged In Bankruptcy?

Although it is not always the case, individual taxpayers can discharge their taxes. If you qualify for Chapter 7 bankruptcy, your tax debts may be erased if they satisfy specific criteria. When it comes to Chapter 13 bankruptcy, your repayment plan may include paying all tax debts, but a small fraction of one that is a non-priority may be discharged. Take note that partnerships, corporations, and LLCs may not be able to use Chapter 7 bankruptcy to erase tax debts.

2. Is Bankruptcy the Most Effective Solution for IRS Tax Settlement?

Bankruptcy may not be the best option if you’re merely looking to lessen your tax debt. Remember that only specific tax debts may be able to be discharged. For instance, those less than three years old can’t be included. Also, it will be more challenging to get a loan in the future because bankruptcy can remain on a credit report for up to ten years. Seek the guidance of a knowledgeable bankruptcy lawyer to know which course of action is most suitable for your case.

3. What Taxes Are Discharged in Chapter 7 Bankruptcies?

In accordance with bankruptcy law, a tax debt may be discharged if the tax return is not fraudulent, at least three years old, and was filed at least two years ago. Additionally, the tax should be an income tax that has been assessed at least 240 days before the bankruptcy filing. Your bankruptcy lawyer can properly evaluate if your debt is dischargeable. 

4. How Does Chapter 7 Differ from Chapter 13 Bankruptcy?

Chapter 7 may oblige you to pay your creditors using money, you acquire from selling non-essential assets. Each state will outline which assets are qualified for selling. Afterward, you are likely to receive a discharge, including tax debt that meets the requirements. On the other hand, you won’t need to sell your assets in a Chapter 13 bankruptcy, but repayments must be completed within three to five years. All priority tax debt must be paid, together with most of the non-priority.

If you need a skilled and experienced bankruptcy lawyer, the Swartz Law Office in Batavia, OH, is the team to count on. From mortgage help to divorce, you can expect to receive dedicated and competent legal representation. Call (513) 732-0900 today for a free consultation, or visit their website to know more about their areas of practice.