How Does The Bankruptcy Code Affect Government Tax Obligations?

By mfishman

Often times, people seek out bankruptcy to help them write off some of their outstanding debt. One controversial topic that has scared many people new to bankruptcy is whether or not it will affect your government tax obligations. With so many different answers out there, this is one that has been well-researched to ensure its accuracy.

What Does Bankruptcy Do As Far As The government Is Concerned?

The government will set out to collect any taxes that you may owe, but when you file bankruptcy they are forced to back down during the proceedings. Any other debts that you had at the time of filing bankruptcy can’t attempt to collect during the proceedings either, as this is one of the first orders filed by the court.

When you file bankruptcy, the government will forward it to their Insolvency Unit. These are specialists in handling cases whose parties are currently in bankruptcy. As far as the hold on collecting what you owe, it usually remains for the term that the bankruptcy case is open and for a set period of time after that.

The Common Myth People Fall For When It Comes To Their government Tax Obligations

Often times, many people think that when they file bankruptcy, the government will wipe off what you owe them and start a clean slate. However, this is not the case, as your government tax debt will be reassessed after the bankruptcy and time frame for appeals is over.

When your government debt is recalculated, that is the new balance you owe the Federal government and you will not be able to file bankruptcy in an effort to eliminate it. As this is the balance based on what you made after the bankruptcy was brought into consideration.

Related posts:

1. How Does Filing For Bankruptcy Affect My Government Tax Debt?
2. How Does Bankruptcy Affect A Tax Return?
3. Will Bankruptcy Protect Me From The Government?
4. How Are Government Taxes And Bankruptcy Related?
5. Do I Need A Tax Lawyer For A Bankruptcy?