Owing Taxes While in Chapter 13: What You Need to Know

Owing Taxes While in Chapter 13: What You Need to Know

Tax season is upon us and this year taxes are due on April 18th. If you are currently in the midst of Chapter 13 bankruptcy, you may be wondering how owing taxes will affect your case. While filing for Chapter 13 bankruptcy can provide a way to manage debts and repay creditors over time, it’s important to understand your tax obligations and how they may impact your bankruptcy case. Owing taxes while in Chapter 13 can feel overwhelming, but it’s important to develop a plan for managing your debts. Here’s what you need to know.

Are You Still Required to Pay Taxes in Chapter 13?

Short answer-YES. You are still required to pay your taxes while in Chapter 13. It’s crucial to stay current on your tax obligations throughout your bankruptcy case, including filing your tax returns on time and paying any taxes owed by the due date. You will also need to make regular payments and devote part or all of your tax returns to your trustee, pursuant to the terms of your Chapter 13 repayment plan.

Does Tax Debt Go Into Chapter 13?

Yes, any tax debts owed before your case is filed are included in your repayment plan when owing taxes while in Chapter 13. Some tax debts may be considered priority debts in bankruptcy and must be paid in full over the course of your repayment plan. Some may be considered general unsecured and can be paid pennies on the dollar. This can enable you to only pay priority taxes in your Chapter 13 plan while paying non-priority taxes and other general unsecured debt (such as credit cards or personal loans) at a fraction of what is owed.

What Happens If You Still Owe Taxes at the End of Your Chapter 13?

If you still owe taxes at the end of your repayment plan, you will be responsible for paying them in full. Any remaining tax debts will not be discharged, and you will still be liable for paying them. You should work with an experienced bankruptcy attorney to develop a plan for managing any remaining tax debts after your bankruptcy case is complete.

Challenges of Owing Taxes in Chapter 13

Owing taxes while in Chapter 13 bankruptcy can seem daunting. There are various challenges you may face. Some of these include:

  • Managing tax payments while also making regular payments to the trustee under the Chapter 13 plan.
  • Accruing interest and penalties on tax debts if they are not paid on time, which will increase the total amount owed.
  • Difficulty modifying your Chapter 13 repayment plan to include tax debts if they were not initially included.

These challenges can be mitigated by working with an experienced Maryland bankruptcy attorney.

Strategies for Managing Tax Debts in Chapter 13

To manage your tax debts when owing taxes while in Chapter 13, consider these strategies:

  • Modify your Chapter 13 plan to include tax debts, but this can only be done if the IRS amends its claim.
  • Work with a Maryland bankruptcy attorney who is knowledgeable about taxes to develop a plan for managing your tax debts.
  • Adjust your tax withholdings so you do not owe taxes when your case is completed.

It is important to note that, to get a chapter 13 discharge, you must file all your tax returns. In order to get a chapter 13 discharge, you have to certify that you have filed all of your taxes.

Bottom Line

You still have to pay taxes while in chapter 13 bankruptcy. Tax debt owed before your case is filed will be included in your chapter 13 and must be paid in full over the course of the 3-5 years repayment plan. Tax returns that you receive during this 3-5 year period must be provided to your trustee.

While you may encounter some challenges when owing taxes while in chapter 13, such as managing tax repayment plans and addressing interest and penalties, they can be mitigated by working with an experienced Maryland bankruptcy attorney.

If you end up owing taxes while in chapter 13, this tax debt will not be discharged.

Managing tax debts when also owing taxes while in Chapter 13 can seem intimidating, but it’s crucial to understand your tax obligations and develop a plan for managing your debts during your repayment plan. By staying current on your tax payments and working with an experienced Maryland bankruptcy lawyer, you are more likely to successfully navigate your case and emerge with a fresh financial start.

Steiner Law Group is an Experienced Maryland Bankruptcy Firm

If you are struggling with owing taxes while in Chapter 13 bankruptcy, it’s important to work with an experienced bankruptcy attorney who can help you navigate the complexities of your case. We can help. Steiner Law Group can help you to develop a plan for managing your tax debts and modify your Chapter 13 plan to include tax debts-if needed.

Hire a Maryland bankruptcy attorney with experience in resolving tax debt so you walk away debt-free when your repayment plan is complete.

If you have questions about owing taxes while in chapter 13 bankruptcy, or chapter 13 in general, contact Steiner Law Group today for a free consultation or call us at (410) 670-7060.

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About Eric Steiner, Esquire

Mr. Steiner graduated from the University of Michigan Law School in 2006. Since then, he has focused his practice on bankruptcy, real estate, commercial and consumer collections, including representing the third largest lender in the greater Baltimore area.