When clients file bankruptcy, taxes can be a problem

Bankruptcy is a last resort for clients who are financially distressed and involves many tax decisions.

According to the US Courts Administrative Office, bankruptcy filings decreased slightly in the fiscal year ending March 31. The March bankruptcy filings were mixed because non-commercial deposits (which include consumer deposits) fell sharply while new business bankruptcies rose.

Experts predict that both these trends will increase amid the wave of personal and corporate bankruptcies, as the economic pandemic continues. To read more visit https://bankruptcyhq.com/.

Chapters 7 & 13 are the most popular types of bankruptcy.

Gregory Wade, a bankruptcy lawyer at Wade, Grimes, Friedman, Meinken and Leischner, in Alexandria, Virginia, said that Chapter 7 bankruptcy is a plan to reduce debt. This involves asking the bankruptcy court for the dismissal of the majority debts, with some exceptions such as taxes, alimony and child support. Chapter 13 provides both a debt relief and debt forgiveness plan. debt repayment by establishing a repayment percentage that is based on assets and income.

Bankruptcy declaration

All income tax returns must have been filed before you declare bankruptcy. This determines the amount of tax that will be due. These taxes may not be due immediately.

Wade stated that bankruptcy relief doesn’t depend on how much you have saved for taxes. However, you must file before you declare bankruptcy.

The IRS states that bankruptcy requires you to pay all owed taxes. A rejection of a tax case could result if you fail to file taxes or pay current taxes.

Taxes are an additional category of debt

Many people believe that taxes cannot be discharged in bankruptcy. It is wrong, Wade said. Although taxes can be forgiven or paid in bankruptcy, there are limitations. Most people don’t realize that taxes cannot be paid or forgiven if they are more than three-years old. You also need to have filed income tax returns within three years of declaring bankruptcy.

It is important to know when you should file for bankruptcy, especially if there are a lot of taxes owed. Wade stated, “Let’s assume it’s July. You know that these taxes don’t have three years.” You must make a strategic decision about whether you file for bankruptcy now or later, as it may be too late to obtain a tax waiver. There are other benefits to bankruptcy that don’t depend on taxes.

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