Tax issues can be quite complex to understand in the state of Florida. If we add to this the particularities of bankruptcy processes, the result is a system that is difficult to measure. In many cases, the possibility of eliminating tax debts in bankruptcy is offered, but you may need to take certain precautions before trusting anyone. Bankruptcy attorneys regularly answer the question of whether Florida bankruptcy is helpful for collecting tax debt. The reality is that eliminating tax liability in bankruptcy can be complicated. Therefore, in this note you will find everything you need to know about it and much more.
Before filing bankruptcy, you’ll want to understand when you can eliminate a tax debt, what happens with federal liens, and how to manage tax debt. By the end of this article, you will understand why many filers still owe taxes at the end of a Chapter 7 bankruptcy case and why most Chapter 13 filers must pay taxes in full through a bankruptcy plan. payment.
When is bankruptcy in Florida helpful for tax debt
If you need to discharge tax debts, Chapter 7 bankruptcy will probably be the best option because it is a faster process and does not require payment of the debt. But this option is not available to everyone. You must be eligible for Chapter 7 bankruptcy, and your tax debt must qualify for discharge with a bankruptcy discharge. In order to discharge the taxes on your debt in Chapter 7 bankruptcy, the following requirements must be met:
Taxes must be on income to qualify in the bankruptcy articles. Non-income taxes, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
You must not have committed fraud or intentional evasion. If you filed a fraudulent tax return or intentionally tried to evade paying taxes, such as by using a false Social Security number on your tax return, bankruptcy cannot help.
The debt must be at least three years old. Bankruptcy in Florida is useful for tax debt only if it was originally due at least three years before the bankruptcy was filed.
You must have filed a tax return for the debt you wish to discharge for at least two years before filing bankruptcy. In most courts, if you file a late return (meaning your extensions have expired and the IRS filed a substitute return on your behalf), you have not filed a “return” and cannot discharge the tax. In some courts, you can discharge the tax debt even if you filed a late return if you meet the other criteria.
You must pass the “240 day rule”. The IRS must have assessed the income tax liability at least 240 days before you file your bankruptcy petition, or not at all. This time frame could be extended if the IRS suspends collection activity due to an offer in compromise or prior bankruptcy filing.
Even if you meet these conditions, that does not mean that bankruptcy in Florida is helpful for tax debt in all cases. You could be out of luck if the IRS has already placed a lien on your property. Additionally, some jurisdictions have additional requirements. For example, in the 9th district, you must file your tax return on time, and late filing prevents a discharge. Also, in Chapter 7, if you paid a non-dischargeable tax debt using a credit card, the credit card balance will be a non-dischargeable debt if a creditor challenges it by filing an “adversarial proceeding” or lawsuit. of bankruptcy.
You cannot discharge a federal tax lien
Even if your taxes qualify for Chapter 7 discharge, bankruptcy will not erase previously recorded tax liens. All that Chapter 7 bankruptcy will do is erase your personal obligation to pay the qualifying tax and prevent the IRS from going against your bank account or wages. But if the IRS recorded a tax lien on your property before the bankruptcy filing, the lien will remain on the property. You will have to pay the tax lien before you sell and transfer title to the property to a new owner.
With Chapter 13, is bankruptcy in Florida helpful for tax debt?
Using Chapter 13 bankruptcy to manage your tax debt may be a smart move. Dischargeable taxes (generally those older than three tax years) may be forgiven without payment, depending on the amount of disposable income you have after your reasonable and necessary expenses are deducted from your pay. Forgivable taxes will not incur additional interest or penalties, although you will pay interest on nonforgivable taxes.
Also, you can satisfy an IRS tax lien through the Chapter 13 plan by paying what you owe. The IRS is obligated to comply with the plan as long as you include all your outstanding taxes and keep your tax returns and post-petition tax liabilities up to date during your Chapter 13 plan, which is why bankruptcy in Florida is helpful. for the tax debt. Note that any non-dischargeable taxes that do not go away in bankruptcy (generally those incurred during the last three tax years) must be paid in full during the three to five year Chapter 13 plan. You’ll be up to date on taxes and most or all of your other debts when it’s over.
Should I file bankruptcy before or after taxes?
There are many reasons why you will want to be up to date when you file your bankruptcy. When you file for Chapter 7 bankruptcy, the trustee appointed to oversee your case will ask for your most recent tax return. This does not necessarily have to be the tax return for the last tax year, but the administrator will ask for a written explanation if it is not the most recent return.
The trustee will compare the income you report on your return to the amount on your bankruptcy papers. If you show that you are entitled to a refund, the administrator will also want to verify that you have a right to protect or “relieve” it and that you have claimed the appropriate exemption amount. If not, you will have to give the refund to the trustee, who in turn will distribute it to your creditors, in which case Florida bankruptcy is not helpful for the tax debt.
In Chapter 13, you must be current on your tax returns before filing a case, but the rules allow you some leeway. You will provide copies of the returns for the previous four tax years to the Chapter 13 trustee before the meeting of creditors. If you are not required to file a statement, the trustee may ask you for a letter, affidavit, or certification explaining why. Sometimes local courts impose additional rules for documents in their districts. If you owe the IRS a return but don’t file it before your meeting of creditors, things can derail your case.
As you can see, it is not so easy to say that bankruptcy in Miami is useful for tax debt. To obtain personalized advice on your case, do not hesitate to contact Bankruptcy Now, where attorney Michael J. Brooks will provide you with all his experience.
