Tax debt can be one of the most challenging types of debt to manage. For those struggling financially, filing for Chapter 13 bankruptcy may provide some relief.
Understanding whether Chapter 13 can discharge tax debts is necessary for making informed decisions under Maryland law.
Types of tax debts eligible for discharge
Not all tax debts are eligible for discharge under Chapter 13 bankruptcy. To qualify, the tax debt must be income tax owed to the federal or state government. You typically cannot discharge property taxes, payroll taxes, and penalties for fraud. Additionally, the tax debt must meet specific requirements for discharge eligibility.
Conditions for discharging tax debts
To discharge tax debts under Chapter 13 bankruptcy, you must meet several conditions. The tax debt must be at least three years old, meaning it must have been due at least three years before the bankruptcy filing date. Also, the taxpayer must have filed a tax return for the debt in question at least two years before filing for bankruptcy.
Furthermore, the debt must have been assessed by the IRS at least 240 days before the bankruptcy case. These conditions ensure that the debt is sufficiently old and that the taxpayer has made efforts to comply with tax obligations.
Repayment plan and discharge
Under Chapter 13 bankruptcy, the debtor may include tax debts that do not meet the conditions for discharge in the repayment plan. The debtor will need to make payments on these debts over a three- to five-year period. Once the debtor completes the repayment plan, any remaining eligible tax debts may be discharged, providing significant financial relief to the debtor.
Moving forward with tax debts
Filing for Chapter 13 bankruptcy can offer a way to manage overwhelming tax debts. For those facing mounting tax obligations in Maryland, understanding the eligibility requirements for discharge is essential.
