Chapter 13 is the go-to bankruptcy for taxpayers who owe IRS debts that cannot be discharged in chapter 7. But before you file that petition, you should know:
All priority debts must be paid in full. They cannot be reduced or discharged in bankruptcy. Not sure if your debt gets priority status? Read our article Tax Debts you Cannot Discharge in Bankruptcy.
If your debts are not priority, you may have options: You can repay them through a chapter 13 plan or an IRS installment agreement. If paid through chapter 13, you will save money as you won’t pay any interest or penalties from the day the petition is filed. However, in an IRS installment agreement both interest and penalties continue to accrue until the debt is paid in full.
Tax liens are marked satisfied after you successfully complete the repayment plan.
The bankruptcy court can reduce all tax penalties assessed by the IRS, including penalties resulting from fraudulent tax returns.
The two year rule does not apply to chapter 13 debtors. If you have tax debts assessed by the IRS for unfiled tax returns, you can include them in your chapter 13 plan. You can also ask the bankruptcy court to reduce those debts.
Chapter 13 Bankruptcy Debt Limits
While chapter 13 is an ideal solution for many taxpayers, there are requirements you must meet before you can file. Let’s see if you quality:
Are you a wage earning individual? While you don’t have to earn wages from a traditional job, you must provide proof that you have a steady flow of income. This can include monthly pension payments, social security or money earned as a self-employed professional.
How much do you owe? Your secured debts (i.e. tax liens, home mortgage, car loans) cannot exceed $750,000. And your unsecured debts (i.e. unpaid taxes, medical bills, credit cards) cannot exceed $250,000.
Schedule a Bankruptcy Consultation
Navigating the bankruptcy process is not something you want to do alone. The good news is you don’t have to. We’re here to help. Contact our bankruptcy team to learn how to best protect your home, automobile and other assets from creditors.
Dial 610.734.0750 or click here to schedule a judgment-free consultation today. We look forward to hearing from you.