Chapter 13 Bankruptcy Will Not Eliminate Tax Debt

Tax debt is not discharged in a bankruptcy filing, and must be paid. In Arizona, filing for Chapter 13 bankruptcy is still a smart way to handle back taxes, however. In the Chapter 13 repayment plan, the bankruptcy court will determine which of your creditors are repaid, at what amount, and in what order. While the IRS is technically a creditor alongside all of the other creditors, some types of taxes take a priority position in the distribution process.



If you are faced with both an overwhelming tax debt and a bankruptcy, you will want to consult with experienced bankruptcy lawyers. In AZ, you should contact The Frutkin Law Firm, PLC, of Phoenix. The Frutkin bankruptcy attorneys can help you navigate the tricky path of back taxes, interest and penalties that must be covered when filing for Chapter 13 bankruptcy in Arizona.

Are Child and Spousal Support Debts Discharged in Chapter 13 Bankruptcy?

There are some types of debt that cannot be discharged in a Chapter 7 bankruptcy “fresh start.” Most commonly, these debts are spousal support, child support, student loans and tax debt. For those that owe large sums for back child support, spousal support, or student loans, Chapter 13 bankruptcy process may be the best choice when filing for bankruptcy in Phoenix, Arizona,

Chapter 13 bankruptcy does not eliminate these debts. It provides a way to get caught up and to repay the debts in full. An experienced bankruptcy law firm AZ can help you determine if Chapter 13 bankruptcy is the right filing for your situation, and it is important to consult with a bankruptcy attorney, such as The Frutkin Law Firm, PLC, in Phoenix, AZ, before you make any bankruptcy filing decision.



For the debts that cannot be discharged in bankruptcy, such as spousal support, child support, student loans, or taxes, Chapter 13 bankruptcy protection will stop any harassment or garnishment and provide time to restructure the debt and complete a repayment plan. A Chapter 13 bankruptcy filing allows the debtor time to restructure the debts and repay them in full.

What does “Automatic Stay” Mean?

In bankruptcy filing, whether it is Chapter 13 bankruptcy or Chapter 7 bankruptcy, the automatic stay is a special legal provision that immediately stops all creditors’ attempts to collect a debt during your case. The automatic stay can immediately stop a wage garnishment or prevent a new one from starting. However, the automatic stay will only stop legal action on debts that can be discharged in bankruptcy, and so excludes garnishment for debts such as child support.

The automatic stay stops garnishment or levies of wages or bank accounts, collection attempts through harassing phone calls or letters, starting or continuing any lawsuits, repossession of assets, and foreclosure on property.

In Chapter 13 bankruptcy or any bankruptcy, you will want to seek knowledgeable advice from a bankruptcy lawyer. The bankruptcy attorneys at the Frutkin Law Firm, PLC, in Phoenix, Arizona, have decades of experience in handling bankruptciy cases and can help you – especially in cases where an automatic stay is needed quickly.

Should I Consider a Lien Strip?

Most liens are secured by an asset – in this case, your home – and must be paid when the asset is sold or foreclosed. If you have more than one mortgage or other liens against your house, and if the value of the house is “underwater,” then you should consider a lien strip. Lien stripping is a complicated procedure with many variables, and it is best to consult with experienced bankruptcy attorneys. In Phoenix, Arizona, you might consider The Frutkin Law Firm, PLC.

In Arizona’s volatile housing market many home values have fallen well below the balance of the first mortgage, let alone the second mortgage, and the homeowner is considered to be underwater on the mortgage. When the home is sold or foreclosed there will not be enough proceeds to pay off the first mortgage or any other liens on the property.

In a bankruptcy filing, lien strip means that the court could reclassify a secured lien to an unsecured lien. The status of a lien as secured or unsecured will make a big difference when determining the repayment of the debts during bankruptcy. In Chapter 13 bankruptcy repayment plans, secured debts are paid off first and unsecured debts are delayed. Sometimes unsecured debts are paid off in fractions over time, and may even be paid at less than the outstanding balance. Having a lien stripped in Chapter 13 bankruptcy can amount to a significant difference in the repayment.

An Overview of Chapter 13 Bankruptcy

In Arizona, chapter 13 is a broader bankruptcy filing and allows for some flexibility in retaining assets. Chapter 13 bankruptcy filing may allow a debtor to keep an asset, such as a home or other valuable, while completing a plan to make overdue payments. These assets are considered by the court to be exemptions from the bankruptcy proceedings, and must be court-approved.

In chapter 13 bankruptcy, the debtor submits a plan to repay some of the debts over 3-5 years and that plan must be approved by the court at a confirmation hearing. Any debts that are not to be repaid are not immediately discharged; the discharge will not occur until the payment plan is complete. During the repayment period, the debtor is protected from legal action by all creditors, whether included in the repayment plan or scheduled for discharge.

Filing for chapter 13 bankruptcy in Phoenix, AZ, should be done with legal counsel. There are a number of details and factors that weigh on this decision, and it is wise to consult with an experienced bankruptcy attorney such as The Frutkin Law Firm.

Filing for Chapter 13 Bankruptcy Can Improve Your Credit Score

Though it seems ironic, if you qualify for Chapter 13 bankruptcy, then filing for Chapter 13 bankruptcy might be the best thing you can do for your credit score.

While a bankruptcy filing is the most devastating blow your credit rating can take, a discharged bankruptcy has the effect of resetting your credit score. If you also have positive credit activity on your credit report – such as a reaffirmed mortgage, utility bills, etc – then your positive credit score will begin to rebuild relatively quickly.

It is always best to discuss filing for bankruptcy in Arizona with an experienced bankruptcy attorney, such as those at The Frutkin Law Firm, PLC, in Phoenix, Arizona. The bankruptcy lawyers at Frutkin Lawfirm can help you understand what effect a bankruptcy filing will have on your credit scores.

Can I file for Chapter 13 Bankruptcy if I Own a Business?

If your business is a sole proprietorship, you can file for Chapter 13 bankruptcy to reorganize and repay your outstanding debts. If your business is a corporation or partnership, you will need to consult with a qualified bankruptcy attorney, such as Frutkin Lawfirm, PLC, in Phoenix, Arizona, to determine which bankruptcy chapter is right for your situation. Typically that will be Chapter 11 bankruptcy.

There are some limits when filing for Chapter 13 bankruptcy, and again, an experienced bankruptcy lawyer is your best advisor.