Taxes, bankruptcy

Need More Time to Pay Your Taxes? Consider Bankruptcy

Bankruptcies are tricky affairs for a number of reasons, not least among them the requirement to file and pay taxes while you are going through the process. What many debtors do not realize is bankruptcy only places an automatic stay on past debts. Any debts you accrue after filing are still owed. That includes your taxes.

Rather than complicating the process, it is best for debtors to follow the recommendations of any reputable bankruptcy lawyer. By following these steps, you are more likely to remain in good standing with both the bankruptcy court and the IRS.

Hire a Bankruptcy Lawyer

In the vast majority of cases, it is better to jump right in and consult with a bankruptcy lawyer. You should inform the lawyer of tax returns filed for each of the past three years. The bankruptcy lawyer will provide invaluable input on how your filings may affect a bankruptcy case. For debtors who have not filed in the current year, you should consult with your attorney concerning the pros and cons of whether to file bankruptcy now or to wait.

Provide your lawyer with a copy of all your tax records if you have filed in the last two years.

It is important to ensure you file your taxes on time. Penalties are separate for failing to pay your taxes. You will end up having to pay both your taxes and the penalties if you do not file on time. There is no benefit for not filing, as the IRS can still determine whether or not you have paid taxes. Remember – with some exceptions, April 15 is the deadline for filing your taxes each year! The timing of your bankruptcy filing also can be a factor in determining what taxes can be discharged.

IRS Payment Plan

To help ensure you can pay taxes that are not discharged in a Chapter 7 bankruptcy, you can contact the IRS to arrange a payment plan. This will give you time to catch up on paying your taxes and regain your financial footing. Remember to also continue filing tax returns regardless of whether you go ahead with bankruptcy or not. The IRS may not agree to a payment plan while you are in a pending bankruptcy case, so you may need to wait until your Chapter 7 case is completed to request a payment plan. Plus, you would not want your IRS payment plan to include taxes that could be discharged in the Chapter 7 if you know you are planning to file a Chapter 7.

Some tax obligations may be wiped out when a discharge is received in a Chapter 13. However, all priority taxes are included in your payment plan. This will allow you to get up-to-date with your taxes over a 3-5 year period, although you may still owe interest on priority taxes, as priority taxes are not dischargeable, even though the tax itself has been paid in your Chapter 13 plan.

Keep in mind all bankruptcy cases are unique in their complexities. Reach out to a lawyer from H. Lehman Franklin P.C. if you need advice and guidance. We have over 30-years’ experience in bankruptcy laws and processes. You can reach out to our offices for consultation at 912-764-9616 or email us at We are here to support individuals and businesses in Georgia with understanding both the benefits and disadvantages of filing for bankruptcy, while providing essential representation throughout the process.