Close cross
Call Today:408.286.2766
  • Yelp
  • BBB Accredited Business
  • National Association of consumer bankruptcy attorneys
  • Best of silicon valley

Bankruptcy and Taxes

Bankruptcy Helps with Tax DebtYou May Be Able to Reduce or Eliminate Tax Debt in Bankruptcy

Did you know that in many cases all or a portion of old tax debt can be discharged in bankruptcy? And even if your tax debts are too new and cannot be discharged, filing a Chapter 13 bankruptcy in San Jose can provide a powerful way to pay off income tax debts over time. The rules governing how tax debts are treated in each chapter of bankruptcy are complex, and you should contact our San Jose Bankruptcy attorneys for a free consultation regarding what relief bankruptcy may offer you for your old income tax debt.

Tax Debts in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, income tax debts are categorized into “non-priority” and “priority” debts. Generally non-priority tax debts do not have to be paid back in their entirety through the Chapter 13 plan—meaning that some or all of these debts may be discharged upon the debtor’s completion of her Chapter 13 plan. In general, if the tax debt is old enough, and the debtor filed her income tax returns timely, and so long as the IRS has not placed a lien against the debtor’s assets, then the taxes may be treated as non-priority, unsecured claims, and the taxes are treated just like credit card debts, medical bills, and other general unsecured claims. In such a case, the debtor can discharge some or all of these tax debts.

Chapter 13 can offer real relief for priority tax debs as well, however, because even though priority tax debts must be paid off through the Chapter 13 plan, the Automatic Stay of the bankruptcy case will protect the debtor from the IRS or Franchise Tax Board by preventing these tax authorities from garnishing the debtor’s wages, levying her bank accounts, or placing new liens against her assets. The debtor can then propose a workable payment of such priority tax debts through her Chapter 13 bankruptcy plan and take up to five years to do so.

Tax Debts in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, old income tax debts that would be treated as “non-priority” in Chapter 13 can in many instances be discharged completely! That means they can be wiped out, and you never have to pay them. Remarkably, as long as the income tax debts meet all of the rules relating to dischargeability, it is easier to discharge tax debts than it is to discharge student loans in bankruptcy!

As a general rule, if the taxes were first due more than three years before filing your bankruptcy petition, and provided that you filed your tax return for that year more than two years before filing your bankruptcy petition, and as long as the IRS has not assessed additional taxes for that tax year within the 8 months before you file your bankruptcy petition, then those taxes may be discharged in a Chapter 7 bankruptcy.

Again, the rules and time calculations for determining how tax debts are treated in bankruptcy are complex. Do yourself a favor and contact us for a free consultation with a San Jose Bankruptcy lawyer. We’ve dealt with hundreds of bankruptcy cases involving tax debts.

Let Us Help You

Testimonials

Jon Brooks was wonderful to work with on filing for bankruptcy. He is professional, polite, and very detailed. I'm so grateful I'm debt free... Read more

Michelle D., San Jose

I just wanted to take this time to say that I had the privilege of being represented by my bankruptcy attorney Jon. At first I was really te... Read more

Frank S., San Jose

Jon focused on the key issues quickly, and knew critical answers I could not find elsewhere – even from other attorneys! I highly recommen... Read more

C.C., San Jose

If you are reading this, chances are you haven’t been on a ‘winning streak’ in your life lately. When my wife and I came in to see Jon... Read more

Keith A., San Jose

Jon provided me with the pros and cons of what type of bankruptcy to file which I understood very well as they were presented to me and my w... Read more

Tony G., Fremont

Jon Brooks demonstrated confidence, compassion, and professional integrity while handling my challenging bankruptcy case. He skillfully disc... Read more

Lisa C., Palo Alto

I can't thank Jon enough for helping us through the most difficult time in our life. Coming to the conclusion that I had to file bankruptcy ... Read more

J.S., San Jose

Choosing Jon to represent me in my bankruptcy case was the best decision I have ever made! He is extremely knowledgeable and explained every... Read more

Sara L., Campbell

Jon Brooks helped us get a fresh start without making us feel ashamed for our bankruptcy. He and his staff were professional to an ultimate ... Read more

Y. Carter and D. Carter, San Jose

I am a young single mother that went through a very difficult time and knew bankruptcy was the smartest option for me at the time. Mr. Brook... Read more

S.M., San Jose

We were saved by the office of Jon Brooks when our country was in the Great Recession. They solved our second mortgage and debt problems pow... Read more

Sam S., San Jose

Jon Brooks and his wonderful team helped me with my bankruptcy case and gave me back my peace of mind. My initial (free) consultation with M... Read more

Raquel P., San Jose

Read more testimonials...

Recent Blog Posts

Dos and Don’ts Before Filing Bankruptcy in San Jose

Considering Filing Bankruptcy? These Dos and Don’ts Will Go a Long Way Toward Ensuring Your Bankruptcy Case Goes Smoothly First, let’s start with the things you should do now if you are considering filing a personal ...

Read more
Credit and Debt Are Two Different Things! How Bankruptcy Helps Each

Bankruptcy, Debt and Your Credit Report I am contacted nearly every day about whether I can “clean up” someone’s credit report.  It usually goes like this: the person has just been denied from renting an apartment...

Read more
Why Car Title Loans Are Always a Bad Idea

You paid off your car or truck loan.  Congratulations!  It likely took up to five years to do that, and you justifiably feel proud of that fact.  But unfortunately due to an unforeseen circumstance, you now need money...

Read more

Get the help you deserve from expert debt lawyers

Call today to schedule a free consultation with an experienced San Jose bankruptcy attorney:

408.286.2766
Map