Debts can build up from many causes, whether they are related to medical expenses, student loans, credit card balances, or others. One way that individuals may find themselves facing the need to file for personal bankruptcy is if they incur large tax bills. However, New Yorkers who hope to discharge their tax debts through bankruptcy should be aware that such scenarios are not always achievable.
Particularly, if a person chooses to file for Chapter 13 bankruptcy, his tax debts will likely be factored into his overall repayment plan. Chapter 13 bankruptcy, unlike Chapter 7 bankruptcy, does not involve liquidation. As such, the debts that a person carries with him are organized and a plan is made to pay them off with the income that the filer earns.
Under Chapter 7 bankruptcy, a filer may be able to discharge his federal tax debts if he is able to meet an extensive list of requirements. Some of the requirements that the debtor must meet are having the debt for at least three years, having successfully filed income tax returns, only having debts related to income taxes, and not committing any tax crimes such as evasion or fraud. There are other requirements that individuals must meet, and even if a person can satisfy most or all of the stipulated rules, his tax debt still may not be discharged under the Chapter 7 process.
Tax debts can be significant if a person earns a sizable income. Though overspending, tough financial times, and overextending credit are often cited as reasons for needing to file for personal bankruptcy, tax obligations can sink a person into dire economic problems. Speaking with a bankruptcy attorney can be a helpful first step for those who wish to find out if they may be eligible to eliminate their tax debts through consumer bankruptcy.