The IRS takes tax debt very seriously. If you do not pay your taxes, you may face severe tax penalties such as the seizure of your assets, wage garnishments or deductions from your paycheck, a tax lien placed on your assets, and interest charges.
Since ignoring your tax debt can only worsen your situation, it’s essential to contact our Ohio tax debt relief attorneys at Luftman, Heck & Associates if you are struggling with this issue. After evaluating your case, we may determine that bankruptcy can give you some relief on your tax debts.
Call us at (216) 369-6715 today.
Tax Debt Discharge Criteria
In order for your IRS and Ohio personal income taxes to be discharged through Chapter 7 or Chapter 13 bankruptcy, the following criteria must be met:
- Three Year Rule – The due date for filing your income tax return was at least three years ago.
- Two Year Rule – Your income tax return was filed more than two years prior to your bankruptcy filing.
- 240 Day Rule – Your income tax return assessment was at least 240 days before you filed for bankruptcy. This assessment is the internal acknowledgment of overdue tax debt. You should have received notices in the mail informing you that you have been assessed.
- You are not guilty of tax evasion and your income tax return is not fraudulent.
Chapter 7 Bankruptcy Tax Relief
Chapter 7 bankruptcy can eliminate all your dischargeable income tax debts in only three to four months. A means test will determine whether you qualify for Chapter 7 bankruptcy and can use this method to free yourself of your tax debts. The means test will compare your family size and income over the last six months to the median income of a family of a similar size in Ohio. In the event that you earn less than the median income, you will likely be eligible to file for Chapter 7 bankruptcy. However, if you earn more than the median income and have disposable income each month to pay your tax debts, you may not be able to file Chapter 7 bankruptcy.
Chapter 13 Bankruptcy Tax Relief
If you do not qualify for Chapter 7 bankruptcy, you may be able to find tax debt relief through Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you will be responsible for paying the majority of your secured and your non-dischargeable taxes through a repayment plan that you can comfortably afford. Often times, the repayment plan will not require you to pay some or even all of your dischargeable taxes and tax penalties.
If you are paying medical bills, credit cards, or other unsecured debts through the repayment plan, you will pay taxes at the same percentage. For example, if you are paying your medical bills and credit card debt at 5 percent, your taxes will also be paid at 5 percent, meaning you will probably save a significant amount of money on your tax debts.
Non-Dischargeable Tax Debts
There are certain tax debts that are not dischargeable in Chapter 7 or Chapter 13 bankruptcy cases. These tax debts include:
- Tax liens – If there is a tax lien associated with your property that was recorded before your bankruptcy filing, the lien will remain. You will be responsible for paying off the lien from any profits that result from the sale of your property.
- Property taxes – You will not be able to discharge property taxes that were incurred and owed in the year prior to when you filed for bankruptcy. If a lien is attached to your property, the debt is treated as a secured debt.
- Taxes a third party is required to withhold or collect – FICA, Medicare, and income taxes that an employer must withhold from an employee’s pay and sales taxes paid by a customer that must be submitted to the government are all non-dischargeable tax debts.
An IRS tax attorney can help you determine if your tax debt is dischargeable. If it is not, we may have additional information on how you can obtain relief. Call our Ohio tax attorney with questions about how your tax debt will be handled in a bankruptcy.
How Bankruptcy Stops IRS Collection
If you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay will be placed on the IRS, meaning they will no longer be able to attempt to collect your past due tax debt. Wage garnishments and the placement of tax liens on your assets are all included in these collection efforts. The automatic stay will remain intact through a Chapter 7 bankruptcy discharge or throughout the entire three to five years a Chapter 13 bankruptcy plan takes place.
Contact Our Cleveland Tax Debt Lawyers at Luftman, Heck & Associates
Tax debt law is very complex. For this reason, if you are stressed out about your tax debt, you should consult our skilled Cleveland tax debt lawyers at Luftman, Heck & Associates. In a free consultation, we’ll let you know whether you can discharge your tax debt in Chapter 7 bankruptcy or repay it over time through a Chapter 13 payment plan. Call us at (216) 369-6715 today.