Chapter 13 Bankruptcy and Tax Debts: What You Need to Consider in Missouri

Chapter 13 bankruptcy is a viable option for people who are struggling with debt but still want to retain possession of their assets. However, it can still be a complex process, and many individuals may have questions regarding their tax liabilities when they file for bankruptcy. This is especially important for residents in Missouri because of the state’s tax laws. In this blog post, we’ll be discussing the effect of Chapter 13 bankruptcy on your taxes and whether or not you have to pay taxes after filing for bankruptcy.

Chapter 13 bankruptcy may help to clear your debts, but it doesn’t wipe out all of your outstanding tax debts. In fact, it may only provide you with temporary relief. If you owe tax debt, it will be classified as either priority, secured, or unsecured, with each having a slightly different approach under Chapter 13 bankruptcy.

Priority tax debts often include income taxes that were due within the last three years. These tax debts will likely need to be paid back in full through your Chapter 13 repayment plan. If you fail to include these debts in your plan, it could result in the dismissal of your bankruptcy case.

Secured tax debts, on the other hand, are those that have been secured by a lien such as property or real estate. These debts will need to be paid off through the sale of the secured assets during the bankruptcy process. If the sale of these assets doesn’t cover your tax debt, then you’ll still be responsible for paying the remaining balance.

Unsecured tax debts, such as penalties or interest, don’t have a lien or security and are less prioritized in Chapter 13 bankruptcy. These types of debts are grouped together with other unsecured debts, such as credit card debt, and may not need to be paid back in full. Instead, you might be required to pay back a reduced amount, depending on your income and the amount of your assets.

While Chapter 13 bankruptcy may relieve some of your tax debt, it’s important to note that it doesn’t eliminate all existing or future tax debts. You’ll still be liable for taxes that you incur while your case is pending. For example, if you receive income while your Chapter 13 plan is in effect, you’ll still owe taxes on that income.

In conclusion, Chapter 13 bankruptcy may be a viable solution for those struggling with debt, but it’s important to understand that it doesn’t wipe out all your tax debts. You’ll need to consider the type of tax debt you have and how it will be treated under Chapter 13. Moreover, Chapter 13 doesn’t exempt you from paying taxes incurred after filing, so it’s crucial to stay informed about your upcoming tax liabilities. If you’re uncertain about the effect of Chapter 13 bankruptcy on your taxes, it’s best to seek legal counsel from an experienced bankruptcy attorney to help you navigate the process. By doing so, you’ll make more informed decisions regarding your tax debt and complete the bankruptcy process with minimal complications.

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