Owing taxes while in Chapter 13 can feel very overwhelming for many Ohio residents as this can complicate your repayment plan. However, bankruptcy can be helpful when it comes to managing tax debt, depending on the type of debt and the details surrounding your repayment plan.
Do you need to navigate tax debt in Chapter 13 in the state of Ohio? If so, check out this article, where we will be discussing owing taxes during Chapter 13, strategies you can use to pay off tax debt, and whether or not Chapter 13 discharges tax debt.
Will Chapter 13 in Ohio Discharge Tax Debt?
The good news for Ohio residents who owe taxes while in Chapter 13 is that Chapter 13 can discharge tax debt. However, this is very dependent on each individual situation as the debt needs to meet certain conditions to qualify:
- Type of tax debt: In Ohio, income taxes are the only types of tax debts that can be discharged, which excludes things like payroll tax debts.
- Time of filing: For your tax debt to be dischargeable, you must have filed it on time or within a specific period of time before you filed for Chapter 13.
- Tax debt age: For tax debt to qualify for discharging, it has to be at least three years old starting from the date that the tax return was due.
- Legal tax debt: Any tax debt that was incurred due to intentional evasion or fraud does not qualify for discharge.
In most Chapter 13 cases, you may be able to have the majority of your tax debt discharged, significantly improving your financial situation. Any remaining debt that is not dischargeable will need to be paid off in full through your Chapter 13 repayment plan or through a repayment plan with the IRS. Depending on the extent of the remaining tax debt, you may be able to pay off the full balance over the course of your 3 to 5 year Chapter 13 plan.
Chapter 13 Vs. Chapter 7 For Tax Debt
If you are ready to file for bankruptcy in Ohio, you may want to evaluate whether you should file for Chapter 7 or Chapter 13 bankruptcy. Owing taxes while in Chapter 13 will look different than owing taxes in Chapter 7 as there are different eligibility requirements for dischargeable and not dischargeable tax debt.
In most situations, tax debt is less dischargeable in Chapter 7 since Chapter 7 bankruptcy does not have a repayment plan approach like Chapter 13.
Before you choose which type of debt to file for, you should seek the assistance of a bankruptcy attorney who can evaluate your situation. They can advise you on what type of bankruptcy would help you discharge the majority of your tax debt and how to navigate any remaining debt. It can also be helpful to consult a tax specialist who has experience with bankruptcy discharging.
Owing Taxes While in Chapter 13: What You Can Do
Now that you know whether or not taxes are dischargeable in Chapter 13 bankruptcy, how can you manage your remaining tax debt? The good news is that there are some strategies you can use to address any remaining tax debt during the course of your Chapter 13 repayment plan.
Before you proceed with filing for Chapter 13, the first thing you need to do is hire a bankruptcy attorney in the state of Ohio. An attorney will have experience with Ohio bankruptcy laws as well as federal laws that you will need to follow. They can help you file for bankruptcy, manage your repayment plan, and find the best strategy for addressing remaining tax debt.
Here are some examples of strategies you can use to effectively pay off any taxes that you owe.
Monthly Payments
When you file for Chapter 13, the remaining tax debt on your record will be treated like any other type of debt and will be included in your repayment plan. This is an effective way of managing Chapter 13 tax debt as you will slowly make progress toward closing your balance. During Chapter 13, the IRS will usually stop any collection efforts as long as you are making the monthly payments, so you do not need to worry about garnishment or levies.
If financially possible, you could also pay more toward your tax debt than the outlined monthly payments in your Chapter 13 plan to pay it off sooner. The sooner you are able to close the balance, the less interest and penalties you will have.
Comply With Repayment Plan and IRS
Chapter 13 and IRS tax debt need to be taken seriously, as there are serious repercussions for not correctly managing the taxes that you owe the IRS. Once you have filed your Chapter 13 repayment plan and have begun making monthly payments, you still need to continue communicating with the IRS. Ensure your repayment plan is up-to-date and correct and that the IRS knows you are making headway toward paying back what you owe.
You also need to comply with your bankruptcy plan, whether your repayment plan is 3 or 5 years. Part of your obligation is to make the outlined monthly payments towards your debts, which you must do; otherwise, you are at risk of having your plan closed. If your financial situation changes and you aren’t able to make your monthly payments, you can request to have your repayment plan altered.
Consult a Tax Specialist
It can also be very beneficial before you begin the process of navigating taxes in Chapter 13 to consult a tax specialist. A specialist can examine your situation to ensure you understand how much you owe and address any other avenues you could take toward managing your tax debt.
Contact a Bankruptcy Attorney in Ohio
Are you wondering how taxes and Chapter 13 work together in Ohio? Richard P. Arthur, Attorney at Law, can assist you as you navigate the process of filing for bankruptcy and addressing tax debt. Richard P. Arthur has handled hundreds of bankruptcy cases in Ohio and can help you find the best strategy for managing dischargeable and non-dischargeable tax debt. Contact us today at 937-254-3738 for a consultation.