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Month: November 2022
Will Bankruptcy Affect my Taxes?

On Behalf of O’Brien Law Firm, LLC

Posted on: November 28, 2022

Bankruptcy is a challenging process for anyone and can make things very complicated when it comes to clearing debts and paying taxes. Filing for bankruptcy does not necessarily mean that your taxes or tax debts will be discharged.

Filing for bankruptcy means that you no longer have control over your own affairs, and a trustee is appointed to oversee them. Depending on the type of bankruptcy filing, you may receive a discharge on your overdue debts or a tax refund that will belong to your estate.

Tax Refund and Bankruptcy

There are a few things to remember if you are filing for bankruptcy and want to keep your tax refund. Under Chapters 7 and 11 bankruptcy, if you get a tax refund after filing for bankruptcy, the tax refund will not be a part of your estate. That refund will most probably be used by the trustee to pay off your debts.

Most people file for Chapter 7 bankruptcy because it eliminates most of their tax debts, but you may lose your first tax refund.

However, if you get a tax refund prior to filing bankruptcy, it will be a part of your estate, but as soon as you file for bankruptcy after receiving the tax refund, the money will be used by the trustee to pay the creditors.

Taxes are often considered non-dischargeable, but after filing for bankruptcy, the priority shifts towards paying other important debts, e.g., child support. Tax payments can be discharged under some conditions, e.g., the debt should be at least three years old, you should not have a history of tax evasion, the IRS should not have a lien over your property, etc.

Filing bankruptcy under chapter 13 allows you to keep your tax refund and devise a repayment plan with your trustee. The repayment plan can include or exclude the tax refund amount according to your monthly income.

During the provision of a bankruptcy case, you cannot accrue any new debts that you are unable to pay. Doing that leads to the court dismissing your current bankruptcy. There should be no prior cases of fraudulent refunds that can cause complications in your case.

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Child Support and Bankruptcy

On Behalf of O’Brien Law Firm, LLC

Posted on: November 14, 2022

Parents are legally bound to provide for their children. It is their responsibility allocated to them by the court, and the court makes sure that child support is being paid by both parents to financially support their children. However, sometimes, the parents are unable to pay child support because of bankruptcy.

Bankruptcy can be due to many reasons, e.g., loss of a job, a lower-paying job, exhausted funds, or other reasons. Under such circumstances, it becomes difficult for the parent to pay child support.

Steps to be Taken After Bankruptcy

In case of increased debts and reduced income, you can file for bankruptcy in court. However, this does not relieve you from paying child support. Child support is a priority debt, and you have to pay your overdue payments. Being bankrupt does not mean that you stop paying child support.

After filing for bankruptcy, you have to notify the Child Support Division to come up with possible solutions to your problem. Usually, child support is paid first and is prioritized as compared to other debts, such as tax obligations.

Child support is not dischargeable, but you can modify the amount of financial support by coming to a mutual agreement with the other parent. This usually results in lowering the amount. However, this process does not strike off any overdue payments in case you have missed any.

The relationship between child support and bankruptcy is complex because, despite valid reasons, you cannot simply back off. If you stop paying child support, the court will get an attorney to use different methods to enforce child support responsibilities.

The best method in such a scenario is to reduce your unsecured debts and coordinate with the other parent to stay out of any enforcement laws. Make sure to seek help from a professional. They will help you find some debt repayment plans that pay off a portion of your debt so you can spend more on child support.

Lastly, any income you earn after filing for bankruptcy is not part of the bankruptcy estate. That income can be used to pay off child support arrearages under child support obligations.

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