Bankruptcy and Your Tax Debt in New Jersey

Dealing with tax debt can be overwhelming, and if you’re considering bankruptcy as a solution, it’s important to understand how tax debt is treated in New Jersey bankruptcy cases. In this article, we’ll explore the intersection of bankruptcy and tax debt, providing insights into how different types of tax debts are treated and the potential options available to you.

Understanding Tax Debt in Bankruptcy:

Tax debt is a complex issue that requires careful consideration within the context of bankruptcy. While not all tax debts can be discharged through bankruptcy, understanding the rules and options can help you make informed decisions about managing your financial situation.

• Priority Tax Debts: Certain tax debts are considered priority debts and are not dischargeable in bankruptcy. These include recent income tax debts and tax debts associated with unfiled tax returns. Priority tax debts are usually not eligible for discharge under Chapter 7 bankruptcy, and they must be repaid in full under a Chapter 13 repayment plan.
• Non-Priority Tax Debts: Tax debts that do not fall under the category of priority debts may be eligible for discharge in bankruptcy under specific conditions. Non-priority tax debts typically relate to older tax years and may be dischargeable in both Chapter 7 and Chapter 13 bankruptcy, depending on the circumstances.

Options for Tax Debt in Bankruptcy:

• Chapter 7 Bankruptcy: For non-priority tax debts that meet certain criteria, Chapter 7 bankruptcy may offer an option for discharge. To qualify, the tax debt must be associated with a tax return that was due at least three years before the bankruptcy filing, the return must have been filed at least two years before the filing, and the tax assessment must have been made at least 240 days before the filing. Meeting these criteria can potentially lead to the discharge of older tax debts, providing relief from a significant financial burden.
• Chapter 13 Bankruptcy: If you have priority tax debts or non-dischargeable tax debts, Chapter 13 bankruptcy may provide a structured repayment plan. This allows you to consolidate your debts and make manageable payments over a three- to five-year period. While you will still need to repay priority tax debts in full, Chapter 13 can provide you with the opportunity to manage your finances and catch up on other debts while avoiding aggressive collection actions by the IRS.
• Offer in Compromise: Outside of bankruptcy, you may also explore the possibility of an Offer in Compromise (OIC) with the IRS. An OIC is an agreement that allows you to settle your tax debt for less than the full amount owed. However, the IRS has strict criteria for accepting OICs, and the process can be complex. It’s advisable to seek professional guidance when considering this option.

Navigating Tax Debt in Bankruptcy:

Navigating the complexities of tax debt in bankruptcy requires a deep understanding of both tax law and bankruptcy regulations. To ensure the best possible outcome for your financial situation, consider the following steps:

• Consult a Bankruptcy Attorney: Given the intricate nature of tax debt in bankruptcy, seeking advice from an experienced bankruptcy attorney is crucial. A knowledgeable attorney can help you determine the dischargeability of your tax debts, guide you through the bankruptcy process, and explore potential options.
• Gather Documentation: Collect all relevant documentation, including tax returns, notices from the IRS or state tax authorities, and any correspondence related to your tax debts. This information will be vital in assessing your options and preparing your bankruptcy case.
• Consider Timing: Timing is essential when addressing tax debt in bankruptcy. Understanding the timing requirements for dischargeability criteria is crucial to make informed decisions about filing for bankruptcy and seeking relief from tax debt.

Contact A Bankruptcy Attorney to Discuss Your Tax Debt

Bankruptcy can offer relief to individuals struggling with tax debt, but the treatment of tax debts in bankruptcy is complex and depends on various factors. Priority tax debts may not be dischargeable, but non-priority tax debts associated with older tax years might be eligible for discharge under specific circumstances in Chapter 7 bankruptcy. Chapter 13 bankruptcy provides a structured repayment plan for both priority and non-dischargeable tax debts.

When dealing with tax debt in bankruptcy, seeking professional guidance from a bankruptcy attorney is essential. They can assess your situation, navigate the intricacies of tax law and bankruptcy regulations, and help you make the best choices for your financial future. Remember, each individual’s circumstances are unique, so personalized advice is essential for achieving the most favorable outcome in your bankruptcy case.

Please note that this article is intended for informational purposes only and should not be considered legal advice. Consult with a qualified bankruptcy attorney for specific guidance regarding your tax debt and bankruptcy options.