Do I Need to Pay Taxes While a Bankruptcy Case is Pending?

When you have a pending bankruptcy case, you may be facing serious financial trouble. You may be unable to pay your  bills and drowning in debt- hence the reason for the bankruptcy in the first place. Because of your financial struggles and the pending bankruptcy, you may be looking for ways to cut corners and keep more cash. As such, you may wonder what the tax bankruptcy rules are and whether or not you will have to pay taxes when a bankruptcy is pending.

Taxes and Pending Bankruptcy

Within the United States, the law requires all citizens to pay taxes on income that they earn. This is true whether you are filing for bankruptcy or not. As such, you will need to continue paying taxes while you have a pending bankruptcy filing. In fact, the tax returns that you obtain from the federal government are required in bankruptcy court to show your income, so if you have unpaid back taxes, not only will you have to deal with your current tax obligations, but you will also have to file those back taxes that you never filed so you can present your federal tax returns in bankruptcy court.

In addition, tax debt is generally not dischargeable in bankruptcy- this means that whether you file a chapter 7 or you file a chapter 13, you cannot just make your tax debt disappear. The IRS can continue collection efforts for this tax debt after the bankruptcy, including:

• Placing a lien on your home
• Garnishing your wages

So, if you do face tax debt that you cannot handle, bankruptcy is not going to be the answer. Instead, you should consider doing one of several things:

• Making an offer-in-compromise to the IRS. This is essentially an offer to settle your tax debt for an amount that is less than the total you owe. Some penalties and fees are waived in an offer in compromise, reducing your total bill. Of course, the IRS will have to agree
• Arrange a payment plan with the IRS wherein you pay back the tax debt that you owe over time.

Getting Legal Help

Coping with bankruptcy is hard enough, and it becomes even more stressful and complicated when you add tax problems to the mix. It is important to consult with a qualified and experienced attorney who can assist you in filing bankruptcy and in handling your tax debt so you can better fix your finances and walk away from the bankruptcy with as little debt and obligations remaining as possible.