Tax bankruptcy benefits are awarded to tax payers who have not been able to pay their taxes at the scheduled dates. There are separate benefits provided for the various chapters on bankruptcy. However, these benefits are provided only if certain circumstances are satisfied.
On Tax Bankruptcy
Tax bankruptcy is primarily provided to the debtors as per the Chapter 7 and Chapter 13. As per Chapter 7 the taxpayers are provided with liquidation benefits. That means their assets and properties are liquidated in order to pay off the debtors. Under the Chapter 13, the taxpayers receive wage earner plan benefits.
Tax Bankruptcy under Chapter 7
As per the Chapter 7 only those assets that are considered non-exempt are used for the purpose of liquidation to pay the creditors. The debts that remain after the completion of this procedure is normally discharged, which means the debtor does not have to pay them.
The tax should have been unsecured
The tax should have been due at least three years before the bankruptcy petition was made
The tax should not have been imposed for the fraudulent practices of the tax payer
The tax return has to be registered at least two years before the bankruptcy application was filed
The tax must not have been assessable when the bankruptcy petition was presented
The tax has to be reviewed at least 240 days before the bankruptcy petition was filed
Possibility of Tax Bankruptcy
Under normal circumstances, the various taxes of an entity, both at the state and national level are discharged. However, the chances of discharge depend upon the time period for which the debt has not been paid. Normally, the older debts are discharged.
The priority taxes are the ones that are preferred when the tax bankruptcy benefits are provided to a tax payer. The priority taxes should be unsecured. Normally most of these are income taxes. However, there are excise and employment taxes as well.
The modes of payment of taxes, after tax bankruptcy benefit is provided, are different in case of various Chapters. In case of Chapter 11, the debtors are given six years time in which they have to pay off the taxes including the interest.
In case of Chapter 12 bankruptcy cases the debtors are allowed to make delayed payments to clear off the taxes that remain to be paid. In case of the Chapter 13 bankruptcy cases the taxpayers have three years time to pay the taxes. However, the period may also be extended to five years if the court approves of it.
Tax Bankruptcy – Penalty Relief
The taxpayers receive penalty relief in case of tax bankruptcy under certain circumstances. If the tax was imposed prior to the trustee’s appointment or provision of order of relief then penalty relief benefits would be awarded.
If the bankruptcy petition had been filed prior to the date when the taxes were to be paid, then the taxpayer would be provided with penalty relief. This period also includes the extended period meant for paying the taxes.
Discharge of Tax Debts
There are special benefits for people who earn regularly and, as per, the Chapter 13 regulations have cleared all their debts.
Last Updated on : 10th July 2013