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Many types of taxes cannot be discharged in bankruptcy, including non-income tax debts. However, there are some exceptions for tax debt that meet certain qualifications.
Individuals or businesses with back taxes may face consequences from the IRS, such as wage garnishments, tax liens or even property seizures, depending on the severity and duration of the debt.
Chapter 13 bankruptcy, known as reorganization bankruptcy, allows you to retain some of your assets while paying back your creditors over a set period of time, typically a three-to-five-year period.
In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the trustee to repay creditors.
These include certain taxes, such as payroll taxes, student loans, child support, alimony, and debts arising from fraud or intentional wrongdoing. Debts owed for fines and penalties imposed by government agencies, debts owed for willful or malicious injury to another person or property are not dischargeable in bankruptcy.
Back taxes is a term for taxes that were not completely paid when due. [1] Typically, these are taxes that are owed from a previous year. [ 2 ] Causes for back taxes include failure to pay taxes by the deadline, failure to correctly report one's income, or neglecting to file a tax return altogether.
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