Can Bankruptcy Help You Eliminate Taxes in Maryland?

Bankruptcy is a financial tool that many individuals consider when faced with overwhelming debt. Understanding its implications, especially regarding tax obligations, is essential for residents of Maryland. While bankruptcy can provide relief from various debts, the question remains: can bankruptcy help you eliminate taxes in Maryland?

In Maryland, like in many other states, certain types of tax debts may be dischargeable under specific bankruptcy chapters. Chapter 7 and Chapter 13 are the two most common types of bankruptcy that individuals may pursue. Understanding the nuances of each can help determine how they interact with tax liabilities.

Chapter 7 Bankruptcy and Taxes

Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” This process allows for the discharge of unsecured debts such as credit cards and medical bills. However, tax debts can also be affected, although not all taxes qualify for discharge. To discharge tax debts in Chapter 7, the following criteria must be met:

• The tax return must have been due at least three years prior.
• The tax return must have been filed at least two years ago.
• The tax assessed by the IRS or state must be at least 240 days old.
• The taxes should not be related to fraud or willful evasion.

If you meet these criteria, you may be able to discharge certain types of income tax debts through Chapter 7 bankruptcy.

Chapter 13 Bankruptcy and Taxes

Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” involves creating a repayment plan to pay off debts over three to five years. This option is often more beneficial for individuals who have non-dischargeable taxes, as it allows for the restructuring of tax debts. Here’s how it works:

• Tax debts that are still viable (not yet dischargeable) can be included in the repayment plan.
• Individuals can negotiate payments that fit their financial situation.
• After successful completion of the repayment plan, any remaining dischargeable tax debts may be wiped out.

Using Chapter 13 can be particularly beneficial for individuals who want to stop aggressive tax collection actions while managing their tax debts more effectively.

State Taxes in Maryland

In Maryland, state tax debts are generally treated similarly to federal tax debts in bankruptcy. However, resolving state tax liabilities may involve specific procedures, and it’s essential to engage with a bankruptcy attorney familiar with Maryland state law. They can provide guidance on whether your tax issues can be addressed through bankruptcy and what specific steps to take.

Consulting with Professionals

Tax laws and bankruptcy regulations can be complex. Those considering bankruptcy for tax relief should consult with a qualified bankruptcy attorney or a tax professional. They can help assess your particular situation, clarify your options, and ensure that you follow the correct legal procedures.

Ultimately, bankruptcy can offer a pathway to eliminate or manage tax debts in Maryland. Whether through the discharge options available in Chapter 7 or the repayment plans in Chapter 13, understanding your rights and obligations can provide significant financial relief.

Taking action with informed guidance can set you on the road to recovery and help you regain control over your financial future.