Many adults in the US struggle with debt, so you are not alone if you cannot make minimum payments and are falling behind on monthly bills. From your mortgage and utilities to credit cards and personal loans, you may be underwater and suffering the consequences. Creditors are calling, and the payments you do make go toward fees rather than the underlying balance. If you find yourself in such a position, you might be considering bankruptcy as an option for addressing debt. However, you probably have concerns about decoding Georgia tax debt with bankruptcy in Athens, GA. With taxes being a unique type of debt, it is understandable that you have questions.

US bankruptcy laws provide options for individual debtors under Chapter 7 and Chapter 13, which involve very different proceedings and requirements. The result is similar in that your qualifying debts are discharged after the case. You are free from creditors demanding payment. Still, taxes are another matter. The government is the creditor, and there is a lot at stake with Georgia’s tax debt.

Fortunately, the same bankruptcy laws offer opportunities for you to resolve Georgia tax debt through Chapter 7 and Chapter 13. These cases are complex, so retaining an Athens, GA bankruptcy attorney should be a top priority. You can also read on for some background.

How Chapter 7 Bankruptcy Works in Athens

One common type of bankruptcy for individuals and married couples is Chapter 7, in which you discharge all qualifying debt at the end of the case. The key is that you must meet the strict qualifications, and the criteria are based on your income. You may be eligible for Chapter 7 if:

• Your earnings fall below the state median income for Georgia, an amount that depends upon your household size.
• You make more than the threshold for the state median, but you pass the Means Test. This calculation reviews your income as reduced by monthly expenses.

When you qualify for Chapter 7 via one of these tests, there is still another factor to consider. This type of bankruptcy applies rules on liquidation to pay back creditors. The bankruptcy trustee has the authority to sell your assets to satisfy debt. However, you can use exemptions to protect some types of property. In Georgia, you are allowed to use the state or federal bankruptcy exemptions, so you will certainly want to go with the best option for your circumstances.

Overview of Chapter 13 Bankruptcy

Under Chapter 13 rules, you can also discharge qualifying debt after the case. The main feature of this type of bankruptcy is a debt repayment plan that you enter into with creditors. Instead of liquidation, you pay back what you owe throughout 3 to 5 years. As part of the process, your debts are restructured so that you can afford the monthly payment. In the end, you will wind up paying less than the underlying debt.

There is one critical rule to qualify since you must have a job to file Chapter 13. Bankruptcy laws require you to have a source of income to pay the debt repayment plan. If you are employed, you might consider Chapter 13 even if you do qualify for Chapter 7. Your assets are not at risk of liquidation, so debt reorganization may be more beneficial. However, Chapter 13 is the only option when you are not eligible for Chapter 7 because of the income limits.

 

IRS Legal Action and Georgia Tax Debts

When you owe the IRS money, you are facing a government agency that has different powers and processes compared to private creditors. The IRS has a variety of tools available to get you to pay taxes, some of which you could work out by agreement. Examples include an extension of time to pay or enter into an installment agreement. The downside of this approach to tax debt is that you will still be paying interest until the full amount is paid, which could be considerable. You could also arrange for an Offer in Compromise in which you settle with the IRS for an amount that is less than what you owe.

However, when you cannot pay and do not make other arrangements, the IRS will begin collection action. Initially, the IRS may continue efforts to try and work out an agreement. Enforced collection action is the next, more aggressive step by the government. Options available to the IRS include:

• Filing a Notice of Levy, which may allow the government to take your income or attach your bank accounts;
• Seizing property and eventually selling it to satisfy your tax debt;
• Filing a Notice of Federal Tax Lien, which gives the IRS priority status to get paid in the bankruptcy process.

Options for Resolving Georgia Tax Debt Through Bankruptcy

Instead of taking advantage of the IRS’ options to resolve tax debt, you may find that bankruptcy is a better solution. If you are eligible for Chapter 7, you can discharge tax debt as long as:

• You did not engage in fraud or willful evasion concerning nonpayment of income taxes;
• Your tax debt is at least 3 years old, meaning it became due 3 years ago;
• You did file a tax return related to the amount you owe for the applicable year;
• The 240-day rule is met, as the IRS did assess the tax debt within 240 days before you file or did not charge it at all; and,
• The IRS has not already issued a federal tax lien, making it impossible to discharge your tax debt.

Chapter 13 may also be a strategy to resolve your tax debt, which you would do through your debt repayment plan. If it is dischargeable tax debt, you will not pay interest or fees while your case proceeds. The IRS must comply with the plan and cannot pursue further action against you, but you must continue to file and pay taxes during the Chapter 13 process.

Treatment of Other Debts in Bankruptcy

Aside from tax debt, many people who file Chapter 7 or Chapter 13 also owe amounts for various consumer debts. Many of these are dischargeable in bankruptcy, including credit cards, medical debt, lines of credit, and other personal loans. Note that these are generally unsecured debts, which means you have not pledged any collateral to the creditor.

On the other hand, secured debts cannot be discharged in bankruptcy, though they can be part of the proceedings. A secured debt is backed by collateral, such as your home that secures your mortgage. When you proceed under Chapter 13, you may include arrearages into your debt repayment plan. By continuing to pay your mortgage during bankruptcy, you may keep your home.

In addition, some debts cannot be discharged by law. Bankruptcy rules prohibit you from wiping out debts related to:

• Alimony;
• Child support;
• Court costs related to a criminal or civil case; and,
• Amounts due from certain lawsuits, such as the judgment from a DUI accident in which you caused injuries to the victim.

Proceedings in Bankruptcy Cases

You can see that the proceedings are very different when comparing Chapter 7 and Chapter 13, but there are some common factors when you review the steps in the case. Before you file, there is a significant amount of preparation. An Athens bankruptcy lawyer can advise you on the type of bankruptcy that would deliver the most benefits, and you can move forward with confidence. Another task is to complete the credit counseling course within 180 days prior to filing.

When you are ready to proceed, your Georgia bankruptcy attorney will support you throughout the Chapter 7 or Chapter 13 case. You can count on assistance with:

• Preparing and filing the bankruptcy petition, with all necessary schedules;
• Attending the meeting of creditors with your attorney, where you will face questions from creditors
• Managing any additional requirements set by the court; and,
• Obtaining the bankruptcy court’s final discharge order.

During the Chapter 7 bankruptcy process, your Georgia bankruptcy lawyer will also assist with using exemptions to protect property. Because the Chapter 13 debt repayment plan must be submitted when you file, you will need legal advice to develop a suitable plan. It must meet your needs to pay, but the arrangement must also be acceptable to creditors and the court.

Benefits of Filing for Bankruptcy in Georgia

The advantages of Chapter 7 and Chapter 13 are evident right away, as the court imposes an automatic stay on creditor efforts to collect the debt. Creditors cannot take legal action, garnish your wages, or foreclose on your home. Once you emerge from bankruptcy, the primary benefit is being debt-free. You are no longer behind on bills and struggling to stay afloat.

Though there is an impact on your credit, you have options to rebuild credit and return to solid financial footing. You can obtain a secured loan by pledging collateral, or you might qualify for a secured credit card by depositing funds with the bank. Eventually, you will be able to obtain a traditional loan with a reasonable interest rate. Still, you should stick with the lessons learned in credit counseling to avoid falling into credit problems.

Contact an Athens, GA Bankruptcy Lawyer to Learn More

This overview on decoding Georgia tax debt with bankruptcy is helpful, so it should reassure you that there are options under Chapter 7 and Chapter 13. For additional details on your situation, please contact Morgan & Morgan, Attorneys at Law, P.C., at our offices in Athens, GA. We can schedule a complimentary consultation with a Georgia bankruptcy lawyer who will review your case and guide you through the proceedings.

Related Content: Can Federal Tax Debt Be Written Off By Filing Bankruptcy in Georgia?