Massachusetts Bankruptcy Law: How to Handle Tax Debts

Massachusetts bankruptcy law provides individuals and businesses a pathway to achieve financial relief, especially when overwhelmed by debt, including tax-related obligations. Understanding how to handle tax debts under bankruptcy can be crucial for your financial future.

When dealing with tax debts, it’s essential to determine whether these debts are dischargeable under the law. In Massachusetts, as in other states, certain tax debts can be wiped away through bankruptcy, while others may remain. Generally, to qualify for discharge, the following criteria must be met:

• The tax return must have been filed: You must have filed your tax return for the debt at least two years before filing for bankruptcy.
• The tax debt must be at least three years old: The tax year for the debt must be at least three years prior to your bankruptcy filing.
• The taxes must be assessed: The tax assessment must have occurred at least 240 days prior to filing for bankruptcy.
• The tax return must be honest: The return must not be deemed fraudulent or filed with the intent of evading tax payment.

If your tax debts meet these criteria, they may be eligible for discharge in bankruptcy. However, if the debts are non-dischargeable, you might still be able to negotiate with the IRS or state tax authorities to set up installment plans or settlements.

Filing for either Chapter 7 or Chapter 13 bankruptcy has different implications for tax debts. Under Chapter 7 bankruptcy, several unsecured debts may be discharged, including qualifying tax debts. This straightforward approach could lead to immediate relief.

On the other hand, Chapter 13 bankruptcy allows individuals to reorganize their debts and create a repayment plan to pay them off over three to five years. This might be a suitable option for those who have non-dischargeable tax debts, as it can prevent immediate collection actions, like wage garnishments or bank levies. With Chapter 13, taxpayers can catch up on missed tax payments over the course of their repayment plan.

It’s also important to consider the timing and legal implications of your bankruptcy filing. For instance, if you’re facing collection actions from the IRS, filing for bankruptcy can temporarily halt these efforts due to the automatic stay provision. However, this doesn't stop the tax debts themselves; it only provides a temporary pause on collection actions.

Additionally, after filing your bankruptcy, you must remain compliant with future tax obligations to avoid complications. This means continuing to file tax returns and paying any current taxes as they come due.

Seeking the guidance of a qualified bankruptcy attorney can be invaluable in navigating the complexities of Massachusetts bankruptcy law and tax debts. An attorney can help you evaluate your situation, determine your eligibility for discharge, and guide you through the filing process with confidence.

In conclusion, navigating tax debts in Massachusetts through bankruptcy can be a complicated process, but with the right information and legal assistance, individuals can find a way to regain financial stability. Whether through Chapter 7 or Chapter 13, understanding your options is crucial to effectively handling tax debts in the context of bankruptcy.