Photo by Joshua Sukoff on Unsplash. An income tax lien creates challenges, so try to file bankruptcy to prevent one. Otherwise, bankruptcy can often help deal with a tax lien. This blog post continues a series about the smart timing of your bankruptcy filing. (It was interrupted by two blog posts updating federal unemployment benefits.) The last one in this … Read More
Photo by Olga DeLawrence on Unsplash. You’re considering bankruptcy, and you have some unfiled tax returns for the IRS and/or your state. Should you prepare and file them, and when? Our last two blog posts have been about what you should and should not do before filing bankruptcy. These are important to consider even if you hope to avoid bankruptcy … Read More
Usually you can discharge–write off–an income tax debt by just waiting long enough. Here’s how to discharge a tax debt under Chapter 7.
Chapter 13 is very different from Chapter 7 “straight bankruptcy.” It buys you time to deal effectively with your special debts.
Priority proofs of claim need to be carefully monitored in a Chapter 13 case. Make sure one’s filed so it gets paid, and at the right amount.
Here’s what happens to “priority” debts in an “asset case.”
What makes “priority” debts so special?
Because of Chapter 13’s much more powerful automatic stay, its ability to prevent judgment liens and tax liens is extremely valuable.
A tax lien fully encumbered by the equity in your home is dangerous. Chapter 13 may be your best option.
Chapter 13 forces the IRS/state to accept only partial payment on an income tax debt that is only partially secured by a tax lien.
Once an income tax lien is recorded, Chapter 13 gives you a tool that may enable you to pay no more and yet get a release of that tax lien.
The recording of an income tax lien turns your home into collateral on the tax you owe. Stop the IRS/state from getting that huge advantage.
Bankruptcy DOES discharge–permanently write off–certain income taxes. It’s mostly just a matter of time.
Chapter 13 takes away the danger of a tax lien encumbering the equity in your home. If the IRS or your state tax collector records an income tax lien against your home, and you want to keep the home, sometimes through bankruptcy you don’t have to pay the tax. If there’s no equity at all in the home to … Read More
If the IRS or state has recorded a tax lien on your home, sometimes a Chapter 13 “adjustment of debts” can get rid of both the tax and the lien. Income Taxes that Can Be “Discharged” (Legally Written Off) If you owe an income tax debt, it can be discharged like most other debts. The tax debt just needs to meet … Read More