Can I Follow an IRS Installment Plan in Chapter 13?
When you file for Chapter 13, the court will not allow you to continue with the IRS installment plan. Instead, the court will demand you pay the IRS under your Chapter 13 plan payment throughout your plan, which could last between three and five years. Since tax debt is classified as a priority debt, you must pay it in full. The advantages of making the payment under the Chapter 13 plan rather than the IRS installment plan are:
● You may not have to worry about additional interest. The IRS can only charge additional interest on your tax debt if it has an IRS tax lien.
● A portion of your outstanding income tax debt could be dischargeable
● You may get additional time to repay the debt as a Chapter 13 plan payment extends to as much as five years. This, however, depends on how much time is left on your IRS installment plan.
● Since the court will place an automatic stay after filing for bankruptcy, the IRS cannot take further action in an attempt to recover the debt.
Although most tax debts are non-dischargeable, filing for Chapter 13 bankruptcy can help you discharge other debts. Unsecured debts, like medical bills and credit card debts, can be discharged for less than what you owe. At the end of your plan, you will not have any outstanding taxes or unsecured debts.
How to Handle Income Taxes Under Chapter 13
After successfully filing for Chapter 13 bankruptcy, you are required to file your tax returns when they are due. Not filing your tax returns as required might result in the court dismissing your bankruptcy case. You should also consider paying your taxes when due. Thus, you cannot add post-petition taxes to your current plan payment under Chapter 13 bankruptcy.
What if I Incur Income Tax Debt in Chapter 13 Bankruptcy?
When your withheld payroll taxes are enough, you will not owe any income taxes. This is why it is important to consult a bankruptcy attorney before filing for Chapter 13 bankruptcy. They may advise you to adjust your withholding amount before filing. Increasing your payroll withholding amount means you might need to wait longer before filing Chapter 13 bankruptcy to allow your income to decrease before taking the Means Test.
Increasing your payroll withholding amount means a lower paycheck but can help avoid incurring tax debts. It will also lower your average monthly income and, thus, lower your payments under the Chapter 13 plan.
If you have already filed for bankruptcy, and are under a Chapter 13 plan payment, notify your bankruptcy lawyer immediately. They can find the best way forward. It could be to find a way to get permission for you to sign in to an IRS installment plan to take care of the income tax debt incurred after the petition.
Alternatively, they can petition the bankruptcy court to adjust their monthly budget to accommodate the tax payment. Adjusting your monthly budget can reduce your payment under your Chapter 13 plan for the rest of your bankruptcy.
It is always wise to seek expert help before rushing to file Chapter 13. Depending on your reason for filing, you can get the best advice on how to proceed. The goal for anyone filing Chapter 13 bankruptcy is to get a manageable monthly payment and pay everything off to become debt-free.
If you are filing to get rid of tax debts, consulting with an expert will help avoid incurring additional income tax debts that threaten to dismiss your case or leave you deeper in debt than you were before filing.
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If you are looking for a way to manage debt, we can help. We have various resources to help you determine whether to file bankruptcy or consider other debt-relief options. We can also find an experienced and reliable bankruptcy lawyer near you who provide a free consultation. Our goal is to help debtors get rid of debt through a fast and affordable plan. Get in touch with us today and make your fresh start a reality.
