Financial debts can be extremely overwhelming. It is common for individuals to file for bankruptcy when they are unable to repay their debts. Oftentimes, individuals believe their taxes will be eliminated after filing for bankruptcy. However, certain tax debts cannot be eliminated through bankruptcy. Sometimes tax debt can be reduced depending on an individual’s situation. Individuals seek bankruptcy to be relieved of their debts and obligations. However, bankruptcy will negatively affect an individual’s credit. While filing for bankruptcy may have its perks, it may also have some disadvantages. Individuals need to seek legal assistance before filing for bankruptcy. If you need help filing for bankruptcy, please don’t hesitate to contact a qualified Newburgh Bankruptcy Lawyer who can help you understand how bankruptcy can affect your taxes. With years of experience, our firm can help you achieve a favorable outcome.
How will filing for bankruptcy affect my taxes?
Bankruptcy can be an effective way for individuals burdened with substantial amounts of debt to be relieved of their liability or help them make a repayment plan that reflects their financial situation. Essentially, filing for bankruptcy will affect an individual’s taxes in many different ways. As mentioned above, tax debts may be reduced or discharged after filing for bankruptcy. This applies to federal income taxes. Additionally, it could exempt them from paying penalties or interest as well. It could completely release them from any liability. Ultimately, it depends on what type of bankruptcy the individual files for as some do not require an individual to repay their debt. The bankruptcy process can take up to a year to complete. It is imperative that individuals still pay their taxes despite filing for bankruptcy.
How are federal taxes reduced or discharged?
The only way federal income taxes can be discharged under bankruptcy is if they meet certain criteria. Individuals must file a tax return for their debt two years before their bankruptcy. The tax debt must be income taxes. An individual’s taxes must have been owed three years before they filed for bankruptcy. Most importantly, individuals have not filed any counterfeit or fraudulent tax returns to avoid paying their owed taxes. Lastly, individuals’ income tax had to be evaluated by the IRS at least 240 days before filing for bankruptcy. Individuals who filed for bankruptcy under Chapter 7, Chapter 11, or Chapter 13 may be eligible for discharged tax debts. However, they must meet the above requirements.
It is important to consult a skilled and knowledgeable Newburgh bankruptcy lawyer who can help you choose the right plan for your needs. If you have tax debt, we can help you declare bankruptcy under a plan that will reduce or discharge your tax debts. Don’t hesitate to contact our trusted team members. We are ready to offer you legal assistance today.