Knoxville Tax Debt Lawyer Helps Clients Through Bankruptcy

Firm works to obtain IRS tax relief for Tennessee residents

Taxes may be inevitable, but people sometimes make mistakes in calculating the property amount or fail to pay what they owe in a timely manner. It is possible to use bankruptcy to wipe out or restructure at least some federal, state and local tax debts, but understanding the limitations and eligibility requirements can be tricky. At my Knoxville-based firm, William E. Maddox, Jr. LLC, Attorney at Law, I understand the relevant rules and have decades of experience helping my Tennessee clients to obtain tax relief through the bankruptcy process.

When can you discharge a tax lien in Chapter 7 bankruptcy?

A successful Chapter 7 bankruptcy ends with the court’s discharge of the debtor’s nonexempt obligations, giving the debtor a fresh start. However, only federal and state income taxes, and taxes on gross business receipts, are dischargeable, and then only under the following conditions:

  • The tax return must be due at least three years before you filed for bankruptcy
  • You must make an honest and reasonable attempt to file the tax return
  • The IRS or other taxing authority must assess the tax liability at least 240 days before you filed for bankruptcy
  • You must not have filed a fraudulent tax return or otherwise willfully tried to evade paying the taxes you are seeking to discharge

Other tax-related debts, such as tax liens on your property, payroll, withholding and property taxes, and some tax penalties, are non-dischargeable. If you owe federal or state taxes, I can advise you whether they qualify for discharge under Chapter 7 of the Bankruptcy Code, and will take that into consideration in determining whether you should file for that type of bankruptcy.

What happens to my taxes in a Chapter 13 bankruptcy?

If you cannot get all of your taxes discharged under Chapter 7, a Chapter 13 bankruptcy might be a better option for you. It includes these advantages:

  • Dischargeable taxes won’t incur additional income and penalties, and if you don’t have enough disposable income to pay them, you might not have to pay them at all
  • You can satisfy an IRS tax lien through the debt reorganization plan
  • The IRS must abide by the plan if it includes all of your outstanding income tax and you remain current with your tax obligations during the bankruptcy period that runs for three to five years

On the other hand, you must pay any non-dischargeable taxes, and those taxes do incur interest and can result in additional penalties. I can explain the advantages and potential drawbacks of this process in greater detail and determine if it is right for you, taking into consideration all of your financial circumstances.

Why your tax returns should be up to date before you file for bankruptcy

If you do decide to file for bankruptcy, you should make sure your most recent tax returns are filed and accurate. The trustee who oversees your Chapter 7 case will require you to produce your most recent return and will demand a written explanation if it doesn’t match the income you report on your bankruptcy paperwork. It is even more important in a Chapter 13 case. You must give the trustee your tax returns for the previous four years or explain why you didn’t need to file them. If you don’t, the court might dismiss the case. Even if that doesn’t happen, the IRS might file a tax return for you that overestimates your tax liability, and you might have to pay that amount.

Get started on your tax debt issue in a free consultation with a Tennessee attorney

To learn more, you can contact William E. Maddox, Jr. LLC, Attorney at Law in Knoxville at [ln::phone] or toll free at 865-672-8496. You can also reach me online. Initial consultations are always free.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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