If your debts can be cleared with bankruptcy then will your tax debts also get cleared and you will be able to get your tax refund back? This is a crucial question for many, especially those with tax debts who are worried about being forced to pay taxes without being able to get the refund back. It is a common scenario that many people end up owing a significant amount of money in taxes that cannot be easily repaid. This happens due to various reasons like not being able to generate income to pay your taxes, some amount of tax is deducted on your regular earnings, tax rates have increased, etc. If you are thinking about getting a tax refund through bankruptcy, then you should also know that not all debts can be cleared through bankruptcy. For example, not all taxes are tax debts, some liabilities are not tax debts but are debts. Some people may also consider not taking a loan, if their financial situation does not justify taking a loan.
Let’s explore how tax debts and tax refunds get handled in the bankruptcy process and how you can go about your tax refund during the time that you have a pending bankruptcy case.
How tax debts get discharged in bankruptcy
Under the Bankruptcy Code, there are certain debts and debts are dischargeable, and certain debts are not dischargeable. If your taxes are not dischargeable, it means that your tax debts are not going to be discharged during the bankruptcy process.
However, if you pay your tax debts on the due date, then the entire amount will be discharged under the discharge rules. It is important to note that paying tax debts on the due date does not guarantee that your tax debts are discharged. If there is some ambiguity in terms of your tax debts, then a trustee can challenge your discharge and ask for a determination. A determination is a court order that directs the trustee and any other parties as required to file any action with a court. Thus, if your taxes are not clearly dischargeable then they will be challenged.
Tax debts are usually dischargeable because the bankruptcy system seeks to bring debtors back on their feet, and debts for taxes do not hinder a debtor from paying creditors and maintaining a good credit record. It is also vital to note that even though taxes can be discharged in a bankruptcy case, they may not be dischargeable under the laws of your state.
How tax refunds get handled in bankruptcy
Tax refunds are handled very differently than tax debts. For example, your tax refund is usually protected under the automatic stay of the Bankruptcy Code. A tax refund is protected under the automatic stay provisions of the Bankruptcy Code because it is in the nature of a payment towards a creditor and it is an asset of your bankruptcy case.
Tax refunds are discharged because the bankruptcy case is closed. A tax refund is usually discharged in chapter 7 cases. If you filed a chapter 13 case, the trustee in your case will continue to handle your tax refunds until your case is closed.
How taxes affect credit scores
Your credit score is determined by what is called the “FICO score”, which is a number that is based on the amount of revolving debt you have as well as the credit limits of each revolving credit card. Your credit score can be a major part in determining what you can qualify for in the financial world.
In a bankruptcy case, your credit scores are likely to be negatively affected as a direct result of tax debt. The negative impact from taxes will usually be longer-lasting as they typically last for about 5-10 years.
Chapter 7 bankruptcy: How long will my tax debts remain unpaid
Chapter 7 bankruptcy is a very effective way to get out of a tax debt. A court order can be obtained that orders your creditors to stop any collection actions and to stop pursuing any money you owe them. A bankruptcy trustee will continue to pursue your debts until the case is closed.
Your debts will remain unpaid until a bankruptcy court order releases your debts. After your debts are discharged, your creditors will likely begin a collection process.
For credit card companies, it can take up to 2 years for them to determine how much of a debt you owe. It can take even longer for the IRS to determine your tax liability. Therefore, your taxes are not likely to be discharged for anywhere between 1-2 years.
The reason for the long amount of time for taxes to be discharged is the sheer volume of tax debt out there. In fact, there are over 100 million taxpayers with almost 100 billion dollars of federal tax debt. This is a statistic alone which is enough to cause many people to opt to have their taxes discharged in bankruptcy.
The IRS requires the payment of taxes every year. However, a tax return is due only once a year. If you owe tax debt, it’s important that you file your return as soon as possible. It is recommended that you file your return as early as possible in order to avoid the IRS taking actions against you. If you wait until the due date of your return, it may be too late to have your taxes discharged.
If you are considering bankruptcy, you should know that certain federal taxes are not dischargeable. These include federal income tax, certain payroll taxes, real estate taxes, alimony and child support payments, and fines.
A bankruptcy discharge means that your debts are wiped clean. It doesn’t mean that your credit score gets a makeover. What it does do, however, is give you a clean slate. This means that you can start from scratch and your past debts are a thing of the past.
A bankruptcy discharge will not provide a clean slate if you are behind on your taxes. This is because a bankruptcy will only discharge debts that are “current.” In other words, if you file your return for the current year and have a large balance due, this will not be dischargeable. Your filing will still be considered late and your tax debt will be added to your bankruptcy discharge.
It is important to pay your taxes in a timely manner. Delinquent taxes cannot be discharged. However, if your taxes are not in the best possible position, you may be able to get a tax discharge in bankruptcy.
An attorney can help you determine if your tax debt can be discharged. They will look at your income and the amount of your taxes due and determine if the taxes were incurred from a business that generates a substantial amount of income. The size of the business is also a factor. This is important because not all businesses are eligible for bankruptcy discharges.
There are also other things you need to know about filing for tax relief through bankruptcy. The IRS has a website that you can use to check on the amount of your taxes. You will be able to find out the amount owed and the due date of your taxes. It is a good idea to stay on top of your taxes because the amount can change from one year to the next. Also, this information is for federal income taxes only.
Tax debts that are not in default can be discharged if you owe more than $50,000 in federal income taxes. If you own your own business or your own home, you will also be able to discharge tax debts. Taxes cannot be discharged if you have income taxes owed. However, the amount owed will be subtracted from your income. This is so that you do not owe too much in taxes and end up paying taxes again later. Call Republic Tax Relief for free consulting on whether or not bankruptcy will help with your tax case!