Debtors in Virginia who have debts that they are unable to pay off may want to consider filing for bankruptcy. However, they should understand exactly what the process can do.
Debtors should not make the mistake of believing that a bankruptcy will result in the elimination of all of their existing debts, including tax debts. The debts that are eligible to be discharged will depend on the type of debt and the kind of bankruptcy the debtors file.
Chapter 7 and Chapter 13 in the Bankruptcy Code are the most frequently filed individual bankruptcies. If someone files for a Chapter 7 bankruptcy, all of their allowable debts may be eliminated. For Chapter 13 filers, they will be able to have some of their debts discharged and will be able to pay off their other debts through a payment plan that they can afford.
Regardless of what type of bankruptcy a person files, all of their tax debts may not be eligible for discharge. In order for a person’s tax liability to be discharged, the debt must result from a return that was due a minimum of three years and filed at least two years before a bankruptcy petition is filed. The tax liability also must have been billed at least 240 days before bankruptcy is file and not be associated with fraud or a deliberate attempt to avoid tax laws.
There are also certain debts that that usually cannot be discharged. They include withholding taxes and assessments of tax year periods for which no returns were filed.
A bankruptcy attorney may advise clients with a steady stream of income how Chapter 13 bankruptcy might help them find debt relief. The attorney may be able to assist with developing an affordable payment plan to help resolve debt.