There’s more to taxes in chapter 13 bankruptcy attorney Brooklyn NY than what I’ve written about already, tax refunds and deductions, so now is as good a time as any to discuss some of the other major topics.
First on the list is how do you file your taxes while in bankruptcy? The answer for chapter 13 debtors is that you file the same way you otherwise would. The difference, as noted in the deductions post, is that you will have to dig harder to estimate the deductions that you are entitled to because the trustee will be making the debt payments essentially as your agent. In chapter 7, by contrast, the trustee handles the taxes on the assets in the bankruptcy estate, including business assets, while the debtor pays his or her own taxes based on whatever is left (usually wages).
The next question is what happens to post-petition taxes? In chapter 13, debtors create a repayment plan for the debts that exist at the time of the bankruptcy filing. However, debtors usually continue working, so they gain new tax debts that aren’t subject to the plan. If debtors cannot pay the tax debt outside of bankruptcy, which is what’s expected, the tax authorities can use the rights given to them by the Bankruptcy Code to file a claim for post-petition taxes (Section 1305(a)). This claim will be given priority like other tax claims.
Once that claim is allowed, tax authorities can file a separate motion to modify the plan to obtain payment. Usually this is necessary because debtors are paying too much income to the unsecured creditors through the plan. Alternatively, debtors can try to negotiate with the tax authorities or make an offer in compromise.
Finally, as mentioned earlier, chapter 13 allows debtors to avoid tax liens that are greater than the present value of the exempt property they secure at the time of filing. Essentially, a debtor can use chapter 13 to pay off the lien while treating the excess as an unsecured claim. The lien is released after the case is completed.
Chapter 13 bankruptcy has certain tax advantages over chapter 7, but to use them successfully takes the skills of an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
