Chapter 13 and Taxes
By Priya Jestin, Staff Writer
The filing and subsequent discharge of Chapter 13 bankruptcy could eliminate some types of personal income tax liability. However, there are a few restrictions that you must meet in order to eliminate personal income tax liability through bankruptcy.
In a Chapter 13 bankruptcy, you have to make payments to a bankruptcy trustee who then distributes a percentage of the payment to your creditors. Once a Chapter 13 plan is filed with the court, it determines the amount to be distributed to each creditor by the trustee. One good thing about this is that the bankruptcy judge can force the IRS to accept extended payments on personal income tax liability through a Chapter 13 plan.
You can also discharge your tax penalties in a Chapter 13 bankruptcy because they are clubbed together with other unsecured creditors of the debtor, like credit cards. This means you only have to pay back through the bankruptcy at 10% or ten cents on the dollar.