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The IRS and Chapter 13 bankruptcy

On Behalf of | Dec 29, 2014 | Chapter 13 | 0 comments

Debtors in Kentucky may be interested in learning more about Chapter 13 bankruptcy and how the process interacts with the IRS. This type of bankruptcy is reserved for debtors who are considered sole proprietors, self-employed or wage earners. Applicants who qualify for Chapter 13 bankruptcy have reliable income, meet the requirements established under bankruptcy codes and have filed all the appropriate tax return documents for the four years preceding the application.

In order to benefit from the bankruptcy, applicants are advised to avoid incurring additional debt. Debtors who are filing bankruptcy due to overdue federal taxes may be required to increase estimated tax payments and withholding. Debtors who have entered Chapter 13 bankruptcy status are still permitted to receive their tax refunds. These tax refunds may be allocated towards paying down tax debt or the funds might be subjected to delays. According to the IRS, debtors in bankruptcy can check the status of their returns by looking online.

Once debtors have had their bankruptcy plan approved, the debt may be discharged. Once the discharge has been issued, debtors are absolved of any personal liability concerning certain taxes and debt recognized by bankruptcy court. In order to identify which federal taxes can be discharged, debtors may require assistance from legal counsel.

Debtors who need assistance with understanding more about the filing Chapter 13 bankruptcy typically benefit from contacting legal counsel. Bankruptcy lawyers might be effective in safeguarding debtors from wage garnishments or creditor harassment. Legal counsel may also be able to help protect particular assets that are valued by debtors, such as a family home or other collateral. Lawyers might be able to help prevent creditors from repossessing debtors’ vehicles as well.

Source: IRS, “Chapter 13 Bankruptcy – Voluntary Reorganization of Debt for Individuals“, December 22, 2014