What if My Taxes Are Priority Debts?
If your tax debts don’t meet the requirements described above, they will be considered priority debts. While still unsecured, they are treated differently in bankruptcy than non-priority unsecured debts. Filing Chapter 7 bankruptcy will do nothing to get rid of them. If juggling other unsecured debts like credit cards and medical bills is what is keeping you from paying off your taxes, Chapter 7 could still help you in a roundabout way. But, if you don’t qualify for Chapter 7 bankruptcy, or Chapter 7 won’t do enough to help you with your financial situation, you should consider Chapter 13 bankruptcy.
A Chapter 13 Bankruptcy Filing is an Option
A Chapter 13 bankruptcy reorganization payment plan lasts either 3 or 5 years. Debts are sorted into four categories and paid off in a certain order. First, bankruptcy court, trustee, and attorney’s fees will be paid. Next, secured debts are paid in the payment plan. These are debts that have an asset attached as collateral to a loan. Most secured debts need to be fully paid off in a Chapter 13 payment plan, but most jurisdictions make an exception for a primary residence home mortgage.
The third type of debt paid in a Chapter 13 bankruptcy payment plan is priority debt. This is when your non-dischargeable tax debts would be paid in a Chapter 13 bankruptcy. It is also when other priority debts like student loans and child support arrearages would be paid. If there is any time left in your payment plan after all these debts have been paid, your plan payments will start going towards unsecured non-priority debt. These debts can be discharged without full repayment if your disposable monthly income doesn’t allow for it.