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new braunfels bankruptcy lawyerThere are many different types of debts that can cause difficulty for an individual or family. When money is owed to multiple creditors, a person may struggle to make ongoing payments while also managing their regular expenses. Tax debts can be especially difficult to deal with, since the IRS may take action in several ways to collect taxes that a person owes. The IRS may garnish their wages, seize funds in a bank account, intercept tax returns, or placing a tax lien on real estate or other property. In cases involving IRS tax levies, a debtor will want to understand whether filing for bankruptcy may allow them to discharge their tax debts.

When Can Tax Debts Be Discharged Through Bankruptcy?

As with other types of debts, the collection of tax debts can be stopped by filing for bankruptcy. The automatic stay that goes into effect following a bankruptcy filing will prevent the IRS from implementing tax levies. A debtor can then determine whether the tax debts they owe are eligible to be discharged.

Tax debts can only be discharged if a person has met certain requirements. Only state or federal income taxes can be discharged, so bankruptcy will not eliminate debts for payroll taxes, capital gains taxes, or other types of taxes. In addition, a taxpayer will need to show that:

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schertz bankruptcy lawyerAnyone who struggles with significant debts will want to understand the options that may allow them to reduce or eliminate what they owe. Chapter 7 bankruptcy is often the ideal option for those who do not own significant assets since it can be completed quickly and will allow a person’s unsecured debts (such as credit card balances) to be discharged. However, those who have secured debts (such as a mortgage or car loan) or who own significant assets may need to use Chapter 13 bankruptcy. In these cases, debtors may have options for reducing the debts they owe through methods known as “cramdowns” and “lien stripping.”

Addressing Secured and Unsecured Debts in a Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, a person’s unsecured debts will be consolidated into a repayment plan. The debtor will make payments on this plan over a period of three to five years, and once all payments in the plan have been made, the remaining unsecured debts included in the plan will be discharged. Typically, a person will need to make ongoing payments on secured debts along with the payments made during their Chapter 13 repayment plan. 

Chapter 13 bankruptcy usually will not be used to discharge secured debts since non-payment of these debts would result in the creditor repossessing the property used as collateral for these debts. However, a debtor may have options for reducing the amount of their secured debts.

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texas bankruptcy lawyerDebt can be a difficult issue for anyone to deal with. Fortunately, bankruptcy can provide relief for those who find themselves unable to pay the debts they owe while also covering their ongoing expenses. In many cases, Chapter 7 bankruptcy is the preferable option, since it will allow most debts to be eliminated quickly and easily. This form of debt relief is referred to as a “liquidation bankruptcy” since the bankruptcy trustee may seize some of a debtor’s assets and sell them to pay off the debts owed to creditors. However, certain types of assets are exempt from liquidation. By understanding what exemptions apply to them, debtors can determine whether Chapter 7 bankruptcy is their best option or whether they should choose a Chapter 13 bankruptcy instead.

Bankruptcy Exemptions in Texas

Those who live in the state of Texas can take advantage of some of the most generous bankruptcy exemption laws in the United States, and if necessary, they can use the federal bankruptcy exemptions as an alternative. Homeowners can use the homestead exemption for the equity they own in their homes. In Texas, there are no limits on the amount of a homestead exemption that can be claimed, as long as the home is located on a property that falls within certain size limits. For urban homes located in a city or municipality, a lot can be no larger than 10 acres. For rural homes, a homestead may consist of up to 100 acres for a single person or 200 acres for a family. When filing for Chapter 7 bankruptcy, a homeowner may be able to avoid the foreclosure of their home if they make up any missed mortgage payments and will be able to continue making payments after completing the bankruptcy process. 

Texas’ exemption laws also cover the personal property owned by a debtor. A single person can exempt up to $50,000 of property, and a family can exempt up to $100,000. Personal property may include:

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san antonio bankruptcy lawyerThe recent CARES Act deadline for excluding pandemic relief payments from Chapter 13 “current monthly income” was extended to March 27, 2022. 

Way back in March 2020, the CARES Act made some helpful temporary changes to consumer bankruptcy law. (See our blog post in April 2020 about this.) Some of these changes would have expired, but in the meantime, Congress passed two other laws which extended the changes. These are still temporary, so it’s important to know the new deadlines. Last week we focused on one change dealing with Chapter 7’s means test. Today we focus on a similar change and new deadline about Chapter 13’s crucial “current monthly income” calculation. 

The Crucial Role of Your “Current Monthly Income” in Your Chapter 13 Payment Plan

The Chapter 13 “adjustment of debts” consumer bankruptcy option provides many advantages over Chapter 7 “straight bankruptcy” for many people. Chapter 13 tends to be better for those with tax and child/spousal support debts, vehicle and home mortgage loans, and more than usual or unusual assets. It involves paying into a monthly Chapter 13 plan for the benefit of your creditors. Usually, that plan allows you to prioritize paying your more important creditors over the rest of them. 

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san antonio bankruptcy lawyerThe CARES Act’s March 27, 2021 deadline for excluding pandemic relief payments from the means test was extended by one year to March 27, 2022.

At the beginning of the pandemic, the CARES Act made some helpful temporary changes to consumer bankruptcy law. (See our blog post in March 2020 about this.) Those changes had expiration dates which have now passed. However, in the meantime, Congress passed two other laws which extended the changes. They are still temporary changes. As time passes, these consumer bankruptcy law changes and their new expiration dates continue to be important. Today we focus on one of these changes pertaining to the Chapter 7 means test. 

All Pandemic Relief Payments Excluded as Income for the Means Test

The point of this first change is to prevent the pandemic relief payments from disqualifying people from Chapter 7, “straight bankruptcy.” People could receive and spend their payments without jeopardizing their bankruptcy options. Here’s how it works. 

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