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Income Tax

What Happens When Use Credit Card Debt To Pay Taxes In NJ. Bankruptcy

November 2, 2016 by Robert Manchel

New Jersey Attorney Explains What Happens To Credit Card Debt That Is Used To Pay Income Taxes In A New Jersey Bankruptcy Case.

Typically, in a New Jersey chapter 7 bankruptcy case, unsecured debt is discharged (eliminated). If a debtor meets all of the chapter 7 criteria, the unecured debt will be discharged and the creditor will never again, be able to attempt to collect the debt. In general unsecured debt is any debt that is owed to a creditor, that is not secured or connected to property, such as a car or house. Also, unsecured debt is different than certain types of debt that is not dischargeable, such as child support arrears and/or some types of tax debt. The most common types of unsecured debt is credit card debt and personal loans, that are not secured against property.
The bankrutpcy law provides an exception to the discharge of credit card debt, in a chapter 7, in the event that a credit card is used to pay a specific income tax liability, that would not have otherwise been discharged. In other words, if the the income taxes that were paid, would not have been discharged, the credit card debt that was used to pay the taxes are not discharged, as well. Therefore, to determine if such credit card debt is not discharged, we must review how taxes are discharged. There are other blogs, within my website, that provide a detailed explanation as to the criteria that required for discharging tax debt in New Jersey.
There are specific types of tax debt that are never dischargeable, such as sale’s taxes and taxes due from employers that are collected from their employees and not paid to the taxing authority. Income tax debt, in certain circumstances, may be discharged. The criteria for discharging income tax debt is partly based on the tax year in which the debtor is attempting to discharge. A bankruptcy filing may permit the discharge of income tax debt for some years and not others. The determination as to whether a person may discharge income tax debt, is based on whether the debtor meets the criteria of each year. Therefore, a complete discharge analysis must be completed for each year.
The following are the criteria that is required to discharge income tax debt for a specific tax year, in a New Jersey chapter 7 bankruptcy case: (1) The date on which the bankruptcy case is filed must be three years after the date on which the tax return was due (ie. typically April 15th of the following year); the returns of said year was actually filed more than two years prior to the bankruptcy filing date; the tax authority assessed the income taxes, for such year, more than 240 days prior to the bankrupty filing date; no tax lien was filed for such tax year. Please note that the above referenced dates will be tolled and extended for periods that the taxing authority is not permitted to collect a debt from the creditor. For example, the dates are extended for periods in which the debtor is under an agreement to make payments on taxes for a specific year.

The bankruptcy code does not permit a discharge of the portion of the credit card debt that was used to pay income taxes, for a particular year, that would not have been discharged based on the criteria explained in the paragraph above. However, all of the other credit card debt that is due to the same creditor, that was not used to pay the taxes, will be discharged. Typically, the credit card company would be required to prove such circumstances by filing an Adversary Complaint with the court, objecting to the discharge. Also, the credit card company would likely be required to prove that the funds were used to pay certain taxes that would have not been discharged.
Additionally, based on the bankruptcy code, this chapter 7 discharge exception does not apply to a New Jersey chapter 13 case. In other words, if a non-dischareable tax debt is paid with a credit card, the credit card debt would be discharged in a chapter 13. Please note that this blog explains this complex and detailed subject matter in a very consice and general manner. The results will differ under various situations and facts.

Contact Manchel New Jersey Law, at 866 503 5644, to discuss your NJ. bankruptcy law questions.

Filed Under: Credit Card Debt, Income Tax

New Jersey Bankruptcy Attorney Explains How Tax Transcripts Can Assist A Person In Bankruptcy

January 29, 2014 by Robert Manchel

A New Jersey bankruptcy debtor may be able to eliminate their tax liability, depending on a number of factors. Also, some types of taxes, such as income taxes, may be eliminated. Other types of taxes, such as sales tax and employer withholding tax, may not be eliminated.
In determining whether certain income tax may be eliminated, the bankruptcy laws focus on each year’s income taxes and the classification of the taxes for each year. In general, one may possibly be able to eliminate certain income tax that meet the following criteria:
1. The bankruptcy case was filed 3 years after the date that the taxes were due and should have been filed;
2. The bankruptcy case was filed 2 years after the returns were actually filed;
3. No lien was filed against the debtor;
4. The bankruptcy case was filed later than 240 days after the taxes were assessed;
5. No fraud was involved.
Please note that even though the debtor meets all of the above referenced criteria, the debtor may not be able to eliminate such tax liability.
Typically, a New Jersey bankruptcy debtor will not know the specific dates on which the IRS has documented certain matters that are important in determining when and if certain taxes may be eliminated. Therefore, in cases that involve income tax arrears, the debtor should obtain a copy of their comprehensive tax transcripts that reflect the detailed records of the Internal Revenue Service entries. The tax transcripts will reveal the dates that are relevant to the 5 criteria explained above, and whether a New Jersey bankruptcy debtor will be able to eliminate the debt.
Robert Manchel, New Jersey Bankruptcy Attorney, will answer your bankruptcy protection tax questions at (866) 503-5655.

Filed Under: Income Tax

Income Taxes In Bankruptcy – Explained By a NJ Bankruptcy Attorney

January 8, 2014 by Robert Manchel

Income Taxes in Bankruptcy
This is a very short and limited explanation of how income taxes are dealt with in bankruptcy. There are numerous exceptions and variations of the law.
The bankruptcy laws pertaining to state and federal income taxes are basically the same. Income taxes may be classified as priority debt, unsecured or secured. Depending on the circumstances, it may be possible for a portion of the income tax debt to be classified as secured and/or unsecured and/or priority. The income taxes are analyzed separately for each year. Please note that taxes are typically due on April 15th of the following year, unless an extension applies.
A very limited explanation of how to determine the classification of each years income tax liability is as follows.
A Credit card debt is an unsecured debt. Income taxes are deemed classified as unsecured, like credit card debt, if all of the criteria are met:

  1. A particular year’s income tax return was due more than  3 years prior to the bankruptcy filing;
  2. The returns for such year was filed more than  2 years prior to the bankruptcy filing;
  3. The income taxes for such year was assessed more than 240 days prior to the bankruptcy filing;
  4. No tax lien was filed for such year.

Income taxes are deemed classified as priority if any of the following criteria are met:

  1. a particular year’s income tax return was due less than  3 years prior to the bankruptcy filing;
  2. The returns for such year was filed less than  2 years prior to the bankruptcy filing;
  3. The income taxes for such year was assessed less than 240 days prior to the bankruptcy filing;

Income taxes are deemed classified as secured under any scenario, if the taxing authority filed a tax lien against the debtor.
The portion of the tax that is classified as unsecured is dischargeable and eliminated in a chapter 7.  However, depending on the debtor’s financial situation, a chapter 13 may possibly permit the debtor to discharge or eliminate some or all of  his unsecured income tax debt. Any income tax unsecured debt that is not paid in the chapter 13 is discharged and eliminated.
Priority income taxes can never be discharged or eliminated in a chapter 7 or chapter 13. This means that a chapter 7 discharge will not eliminate any portion of priority income taxes, which continue to be due and owing. Any priority income taxes due at the time of the chapter 13 filing, must be paid through the chapter 13 plan.
The following relates to an income tax liability that is classified as secured. With regard to a secured claim in a chapter 7, the taxing authority will be permitted to keep their secured lien against the debtors’ personal and real property, after the discharge. In a chapter 13, the debtor must pay the amount of the taxing authorities’ secured interest amount through the plan. However, the debtor may reduce the amount of the secured interest to the value of the debtor’s real and personal property, at the time of the filing.
Expert bankruptcy attorney in New Jersey, Robert Manchel,  can be reached at 1 (866) 503-5655 to discuss your tax issues and questions about seeking bankruptcy protection.
 
 
 

Filed Under: Income Tax

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      Manchel
      New Jersey
      Bankruptcy Law

      This web site is designed to provide general information regarding the bankruptcy laws. The bankruptcy laws are complex and may be applied differently, in each case, depending on the particular facts. There may be numerous exceptions and variations for each law and rule. Do not rely on the information provided in this web site. If you are considering filing for bankruptcy protection, you should consult with an experienced NJ bankruptcy lawyer. We are a debt relief agency. We Help people file for bankruptcy relief under the bankruptcy code.

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