The Persistent Myth About Taxes and Bankruptcy

Posted by Kevin on March 29, 2017 under Bankruptcy Blog | Be the First to Comment

Many people believe that bankruptcy can’t write off any income taxes. In fact, it is not uncommon for non-bankruptcy attorneys to lump taxes in with other priority debts like alimony and child support payments (which are not dischargeable) and student loans (which are dischargeable in bankruptcy upon a showing of undue hardship).

Through the next few blog posts, you’ll learn what taxes can be discharged and what can’t. The fact is that bankruptcy can discharge taxes of many types and in many situations. Sometimes ALL of a taxpayer’s taxes can be discharged, or most of them. But there ARE significant limitations, which I will explain carefully in those blogs.

Besides the possibility that you may be able to discharge some or all of your taxes, bankruptcy can also:

1. Stop tax authorities from garnishing your wages and bank accounts, and levying on (seizing) your personal and business assets.

2. Prevent post petition accrual of interest and penalties in certain situations.

3. If paid through a plan, limits your payments to what is affordable as opposed to what the taxing authority demands.

4. Eliminate other debts so that money is available to pay the taxing authority.

Overall, bankruptcy gives you unique leverage against the IRS and/or your state or local tax authority. It gives you a lot more control over a very powerful class of creditors. Your tax problems are resolved not piecemeal but rather as part of your entire financial package. So you don’t find yourself focusing on your taxes while worrying about the rest of your creditors.

The laws relating to taxes and bankruptcy are somewhat complex and not easily handled by “do it your selfers”.  It is recommended that a prospective debtor seek out an attorney with experience in taxes and bankruptcy.

 

Note I mentioned students loans above.  If that is your issue, you can contact me on this website or on http://studentdebtnj.com