People may fall behind on their income tax obligations for many reasons. Perhaps one of their children recently became an adult, but they failed to update their withholding information with their employer. The loss of the tax credits and deductions associated with a minor child could mean that they significantly underpaid their income taxes.
Maybe they have a relatively diversified income stream. They may have underestimated what they might owe based on the success of their investments or their small business. If people don’t have enough capital on hand to pay their income tax in full on the April due date, then they may face an increasing balance due.
Penalties and interest can drastically increase the income tax debt an individual has. Taxpayers dealing with a slowly-rising level of income tax debt may need support as they seek to address the balance due. Some people may contemplate filing for bankruptcy, as they cannot rework their budgets to pay what they owe. Can a Chapter 13 bankruptcy filing help a taxpayer address income tax debt?
A repayment plan can be helpful
In a Chapter 13 bankruptcy case, the filer typically attends a meeting where they negotiate a repayment plan. A past-due income tax debt could be one of the financial obligations included in a Chapter 13 repayment plan.
It may be possible to arrange a reasonable monthly payment that helps bring down the total balance due. Provided that the filer can make the payments as promised, they can avoid additional collection actions until they complete the bankruptcy process.
A discharge can be beneficial
After completing a repayment plan, filers can request that the courts discharge the remaining balance due on their eligible debts. Older income tax debts that are more than three years old may be eligible for discharge at the end of a personal bankruptcy filing.
Even if the tax debts are not old enough to qualify for discharge, eliminating other financial obligations can be beneficial for those with sizable income tax debts. They can rework their budgets to devote more of their income toward their tax debt, allowing them to pay it off more rapidly.
Reviewing financial obligations, including income tax debts, with a skilled legal team could help people determine if bankruptcy is the right option for them. Chapter 13 proceedings can be beneficial for those struggling with seemingly insurmountable income tax debts.
