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Are Bankruptcy Chapter 13 Payments Tax Deductible?
Tax-Deductible Chapter 13 Payments
There are different ways of dealing with debt settlement and getting a fresh start in life financially. One of these is looking into filing Chapter 13, which is one of the many types of bankruptcy proceedings that may apply to you. Here, whatever is left after deducting permitted expenditure (your disposable income) goes towards a debt repayment plan approved by the bankruptcy court.
If you want to secure your assets while paying the debts you owe, declaring bankruptcy under Chapter 13 could be the best option for you. However, to be sure that you are filing for bankruptcy correctly, you must consult with a trusted Towson bankruptcy attorney as soon as possible.
This article is divided into three parts. These are:
- Types of Debt that Must Be Repaid Under Chapter 13 Bankruptcy
- Learning More About the Debt Repayment Plan
- Tax-Deductible Payments Under a Chapter 13 Bankruptcy
Types of Debt that Must Be Repaid Under Chapter 13 Bankruptcy
If you are seeking debt relief and have decided to file bankruptcy under Chapter 13, you will be required to propose a payment plan that should enable you to repay debts in three or five years. It is generally recommended to seek legal advice from bankruptcy attorneys before you work on the necessary paperwork.
The trustee in bankruptcy filings will work with you to allocate payments to creditors, particularly the following:
- Missed child support or alimony payments, unpaid federal or state taxes, wages owed to employees, and other priority debts that you must pay in full
- Secured debts that are due to be paid in full within the duration of the repayment plan, although a home or car equity loan may be crammed down to minimize the balance (depending on the actual circumstances)
- Secured loans that will not expire during the payment plan’s duration, such as a tax lien
- The cumulative amount that lenders of non-priority unsecured debts would be receiving if you filed for Chapter 7 bankruptcy instead
- Administrative costs associated with filing for bankruptcy, such as filing, bankruptcy trustee, and attorney fees
Learning More About the Debt Repayment Plan
Pursuant to relevant bankruptcy laws, a debtor who wishes to keep the property and avoid foreclosure must pay off arrearages on your real or personal property. This is especially applicable to keep a secured asset, such as a car or home.
Some bankruptcy courts will require mortgage payments to be made directly to lenders, while others need you to include them in your debt repayment plan.
Bankrupt individuals are often given three or five years to pay back what is owed, with higher income filers usually paying more per month. The period of time will depend on both the median income and your monthly income six months before filing a bankruptcy petition. Additionally, electricity, phone, tax, and child support payments are often made outside the payment plan.
To avoid mistakes, it is vital to seek legal assistance early on. Our dedicated Towson bankruptcy lawyers will assist you on how to file, explain relevant state law, and help you have a successful bankruptcy filing.
Tax-Deductible Payments Under a Chapter 13 Bankruptcy
Filing bankruptcy helps debtors deal with financial problems, although this generally entails the need to be more responsible in terms of their finances. If you file for reorganization bankruptcy, you must consider all of your debts, including those paid within and outside of the repayment agreement. In addition to this, being mindful of how your payments work will allow you to reap certain benefits.
In general, payments by bankruptcy trustees are attributable to the taxpayer who filed for bankruptcy. This can apply to deductible taxes or business expenses that the trustee has disbursed. In particular, if your Chapter 13 petition for bankruptcy is catching up on home loan arrears, there is a deduction ‘hidden’ within your trustee’s disbursement records.
A substantial amount of each monthly payment on your home loan is interest that could potentially be deducted (if you itemize deductions). However, since your lender will likely not acknowledge Chapter 13 payments as interest, you have to back up your claim for a tax deduction. Hands-on Towson bankruptcy lawyers can help you learn more about this.
Seeking Legal Help from Reliable Townson Bankruptcy Attorneys
It is not unusual for most people who file for bankruptcy to be confused with the supporting documents they need to prepare or the next bankruptcy procedure they must work on. This can be very stressful. If you are considering bankruptcy, get in touch with a local attorney from a trusted Towson bankruptcy law firm.
You will need a professional who will make sure that you file for bankruptcy correctly. Call us at The Grafton Firm and consult with seasoned bankruptcy attorneys.