Bankruptcy Tax Archives (2024)

FAQs

Does the IRS know when you file bankruptcy? ›

If you listed the IRS as a creditor in your bankruptcy, the IRS will receive electronic notice about your case from the U.S. Bankruptcy Courts within a day or two of the petition date.

Type of Tax Debt

Typically, only income tax debts can be dischargeable in bankruptcy. A tax debt owed for payroll taxes, FICA (Social Security) taxes, and trust fund taxes are not dischargeable through any type of bankruptcy proceeding, including Chapter 7.

Trustees can look back at any transaction made within 90 days of a bankruptcy filing to see if it applies. Trustees can also look back at certain property transactions and payments to family or friends, a year before the filing.

In summary, a Chapter 13 bankruptcy can fail for lots of reasons. These could be inadequate repayment plans, failure to make plan payments, changes in your financial circ*mstances, failure to do those required courses, filing too soon after previous bankruptcy, and filing without legal representation.

Your Chances of Being Audited During Bankruptcy

You can be selected simply by filing your tax return. But there is no official rule that filing for bankruptcy will make an audit any more or less likely. Certain groups may be at a higher risk for an audit than others.

Bankruptcy law permits the U.S. Trustee's office to randomly audit up to one out of every 1,000 Chapter 7 or Chapter 13 cases filed. It often chooses to audit fewer cases than this. However, it must audit at least one out of 250 cases in each federal judicial district. Audit based on red flags in the petition.

General Initiative Eligibility

You should be current on all federal tax filings and owe no more than $50,000 in back taxes, interest and penalties combined. If you're a small business owner, you could be eligible for relief under the Fresh Start Initiative if you owe no more than $25,000 in payroll taxes.

If you owe a large amount of taxes, the taxing authority might file a lien to secure payment. In a Chapter 13 case, you'll have to pay the entire amount of the tax lien over the course of the plan.

What Is the Cheapest Type of Bankruptcy? Not only are the fees of Chapter 7 bankruptcy lower, but you also end up paying less to your creditors. While Chapter 7 only requires that you pay the value of your liquidated assets, a Chapter 13 bankruptcy could result in you paying far more over three to five years.

In the case of a pre-paid vacation, it is safe to take and if you can prove your finances were stable at the time you booked it, your bankruptcy case won't be affected. Consent from your bankruptcy trustee is not required.

Does the trustee monitor your bank account in Chapter 7? ›

The trustee might also uncover a hidden bank account during a case audit. The bankruptcy code instructs the US Trustee (a division of the Justice Department) to audit Chapter 7 and Chapter 13 cases, both randomly and in any case that raises the trustee's suspicions.

In Chapter 13 bankruptcy, the court creates a plan that allows you to pay your debt in three to five years. In this scenario, it is easier to take a vacation because you aren't asking the court to discharge all your debt. Your attorney can work with your trustee to approve your travel.

A Chapter 13 petition for bankruptcy will likely necessitate a $500 to $600 monthly payment, especially for debtors paying at least one automobile through the payment plan. However, since the bankruptcy court will consider a large number of factors, this estimate could vary greatly.

The rejection or denial of a Chapter 7 bankruptcy case is very unusual, but there are reasons why a Chapter 7 bankruptcy case can be denied. Many denials are due to a lack of attention to detail on the part of the attorney, errors made on petitions or fraud itself.

Generally, Chapter 7 is more appropriate for simple cases while Chapter 13 for more complicated bankruptcies. Or somewhat more accurately, Chapter 13 can give you more power over and flexibility with certain kinds of creditors, and if you have non-exempt assets.

You can receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down your tax debts.

Before you stop paying bills, you should be sure that you are going to file for bankruptcy and have a plan for the timing. It's hard to catch up once you fall behind, and late payments, penalty fees, and interest can add up quickly, not to mention that waiting may give your creditors time to file a lawsuit.