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Previously it was thoughts that Chapter 13 Bankruptcy allowed you to get away without paying your taxes. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed the rules. Any back taxes related to non-filed or late filed returns can no longer be discharged. This includes any interest that incurred after filing your petition. Penalties cannot be discharged either. In addition, the automatic stay of tax court proceedings is limited to pre-petition taxes.
Tax Returns and Bankruptcy
Under the new law, federal tax returns for the last year must be provided as proof of income in both chapter 7 and chapter 13. If the taxes for the prior year have not been paid, you must do so before the bankruptcy can move ahead.
In order for your chapter 13 plan to be confirmed, you must file all tax returns for the four year period before filing for bankruptcy. You must establish that you filed by the first meeting of the creditors. Seven days before that meeting, you are required to provide the trustee with a copy of your most recent federal tax return. If the returns are not filed, a chapter 7 discharge will not be granted and a chapter 13 plan will not be confirmed. Further, if your creditors request a copy of the return, you must provide it for them.
Tax Liens
Liens give the government a legal claim to your property as security or payment for your tax debt. By filing notice of a lien, your creditors are publicly notified that there is a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in bankruptcy proceedings. The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).
When the IRS places a tax lien on your property, it must be paid in full. However the IRS may be forced to accept a payment plan through the filing of a Chapter 13 bankruptcy
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