Individuals who qualify may be able to discharge some of their income tax liability in a Chapter 7 bankruptcy, as discussed in Part I of this series. For Georgia individuals ineligible to file a Chapter 7 case, or for individuals whose income tax liabilities are not dischargeable in a Chapter 7 case, Chapter 13 may offer some relief.
Income tax liabilities are classified in one of three ways for the purpose of a Chapter 13 restructuring plan: “secured”, “priority”, or “non-priority”. Secured income tax liabilities are those for which the taxing authority has properly recorded a tax lien prior to filing of the bankruptcy case. Secured tax liabilities, like most secured debts, generally must be paid in full through the monthly Chapter 13 plan payments. Whether unsecured tax liabilities are “priority “or “non-priority” is determined by the same rules that govern whether a tax debt is dischargeable in a Chapter 7 case. Tax liabilities that would not be dischargeable under Chapter 7 are “priority”; tax liabilities that would be dischargeable under Chapter 7 are “non-priority.”
Priority tax debt must be paid in full through the debtor’s monthly Chapter 13 plan payments. Non-priority tax debt is treated the same as credit card debt and other unsecured debts; under most Chapter 13 plans these debts will be repaid at a drastically reduced percentage of the total amount owing. Regardless of the classification of tax debt in a Chapter 13 case, interest and penalties stop accruing as of the date the case is filed, fixing as of that date the total amount that must be repaid. If a debtor makes all payments required and otherwise complies with the terms of their Chapter 13 plan that has been approved by the Bankruptcy Court, then they will exit the Chapter 13 case with all of their tax liabilities either satisfied in full, or discharged, having saved several additional years’ worth of interest and penalties.
Since 1986, the Atlanta bankruptcy attorneys of The Rothbloom Law Firm have provided personalized care for people and small businesses filing for bankruptcy. Our firm represents Atlanta individuals seeking relief from the collection efforts of the IRS and state taxing authorities. Our attorneys are experienced at determining whether our Georgia clients’ tax liabilities can be resolved in Chapter 13 cases. Contact us today to discuss whether Chapter 13 bankruptcy could provide any relief for your tax difficulties.