Best Bankruptcy Lawyers near Rio Rancho, NM

Filing for bankruptcy can provide you with a fresh financial start, but it comes with its own set of challenges. If you filed for Chapter 13 bankruptcy, you might have some questions related to your tax debt. This blog post is for New Mexico residents who need to understand the effect of Chapter 13 bankruptcy on their taxes and whether they need to pay taxes during the process. Chapter 13 Bankruptcy and Tax Debts: What You Need to Know Chapter 13 bankruptcy is a repayment plan in which the debtor agrees to repay a portion of their debt over three to five years. During this time, the debtor is protected from collection activities like wage garnishment, foreclosure, and lawsuits. However, the debtor must pay their tax debts just like any other debt, but they can do so at a reduced rate. Effect of Chapter 13 Bankruptcy on Your Taxes When you file for Chapter 13 bankruptcy, your tax debts are treated as priority debt. It means that they are given a higher priority than other unsecured debts, like credit card debt. Therefore, you have to pay them back in full during the repayment plan. However, the interest and penalties on overdue taxes can be reduced or eliminated in some cases, making it easier for you to repay your debt. Do I Have to Pay Taxes If I Filed for Chapter 13 Bankruptcy? Yes, you have to pay your tax debts even if you filed for Chapter 13 bankruptcy. In fact, failing to pay your taxes during the repayment plan can put your bankruptcy case at risk.