Many bankruptcy filings are centered around tax troubles. It is easy to see why bankruptcy is such a powerful tool for getting out of tax debt.
However, filing bankruptcy before the end of the year might solve a portion of your tax problems. The bankruptcy does not include taxes for the current tax year.
Don’t Wait to Pay Taxes
Most people who owe back taxes face similar problems for the current year.
They’ll owe taxes in 2022 when the tax year ends on December 31st. Their withholding is not up to the April 2023 taxes.
Chapter 13 is almost always the best chapter for tax troubles. However, the Chapter 13 plan does not address tax years that haven’t been closed at the time the case is filed.
This means that your bankruptcy liability for the year you file bankruptcy does not get priority over your credit card debts for payment. The plan doesn’t allow the open tax year to be paid.
In Bankruptcy, Tax Liens
No matter how large the tax liens may be, Chapter 13 liens will only pay the fair market value of your possessions at the time you file your case.
The equity you have in your assets, which remains after any tax liens were filed before the lien, is what the liens are paid.
The IRS Threatens Levy
People often call a bankruptcy lawyer to get a notice of intent for the levy. This notice can seem to spell doom for your life.
An actual levy is not an option for the IRS. The Service has many processes and procedures that are part of its collection process.
This article was written by Alla Tenina. Alla is one of the best tax attorneys in Los Angeles California, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. Visit www.teninalaw.com for more information.
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