Tax Debt Solutions Blog

Tax Relief: Chapter 13 Bankruptcy

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A Chapter 13 may be the answer if your tax debts aren’t eligible for a Chapter 7 solution.

Fundamentals of Chapter 13 Bankruptcy

Most tax payers holding tax debts choose Chapter 13 for bankruptcy.  An offer for a monthly payment plan is made to the Bankruptcy Court.  If the court approves you are responsible for making monthly payments to a trustee appointed by the court.  The trustee shares out the money to your creditors as well as the IRS.  Such a payment plan remains in operation for five years.

Taxes Paid in a Chapter 13 Plan

You are obliged to pay secured taxes in full.  This is if you have a recorded lien and property with a present value the same as the tax lien.  When this is paid the lien is no longer attached to your current property or upcoming property.

Additional Motives Why Chapter 13 is Advantageous:

The IRS is forced to accept a repayment plan.  The IRS may only take what the bankruptcy judge endorses.  Chapter 13 ensures property and wages may not be seized and recollection procedures may no be resumed by the IRS.  If a revenue officer refuses to allow an evenhanded payment plan then Chapter 13 is a means of bypassing this obstacle.

As soon as you file for Chapter 13 all penalties and interest cease accruing but not on secured taxes.  On the other hand, an IA (Installment Agreement) agreed to by the IRS keeps on accruing late payment penalties and interest.  Tax penalties are handed out at the discretion of the bankruptcy judge.

Becoming Eligible for Chapter 13 Bankruptcy

To find out if you qualify for Chapter 13 you must reveal your liabilities, expenses, assets and income by completing a set of forms.  In addition, all your tax returns from four years before the bankruptcy must be filed.  You are also obligated to present a proposed payment plan.

Once you have all of the above you can present it to the bankruptcy judge who assesses your request and assigns a trustee to watch over your case.  All your creditors may attend a meeting to oppose your plan.  This hearing is set up by the assigned trustee.  It is not usual for the IRS to oppose a Chapter 13 request.

It is possible for the judge to make revisions to your plan but if your forms are in order it will be permitted.  Your sixty monthly payments go to the trustee who pays your creditors on a pro rata basis.