While most outstanding, unsecured loans are written off or discharged in case of a bankruptcy, tax debt in bankruptcy is not one of them. Taxes are compulsory payments that you make to the government. There are a number of taxes that you pay, including income tax, that you cannot ignore. If you do not pay taxes, you are likely to face serious charges that include fines and even prison time.
Tax debt in bankruptcy
Tax debts are priority payments in bankruptcy. There are a few procedural differences in the way a Chapter 7 and Chapter 13 work, but there are also common threads. In a Chapter 7, your assets will be liquidated and sold off to clear your debts. The first to be cleared will be your secured debts like your mortgage and car loans. Next, with the equity that your property and other assets have built up, your other priority payments will be cleared. That includes your child support payments if any and your taxes. All of your taxes will be cleared, the government does not discount taxes under any circumstance. The only tax that has any chance of being discharged in a Chapter 7, and that too in rare circumstances, are your income taxes. At the end of the bankruptcy procedure, if your assets are not able to cover the tax payments, you will still owe it.
In case of a Chapter 13, the process is similar, but a bit more complicated. The entire process of creating a repayment schedule and its intricacies take between 3 to 5 years. You should be up-to-date with your taxes not just before your bankruptcy filing but also during the entire process.
Make sure you always file your taxes. You do not want to have your taxes adding to your existing debt woes. Consult with an experienced bankruptcy attorney in Dayton for more help with tax debt.