Perspective on Bankruptcy bill
Books on bankruptcy
Bankruptcy in Briefa service of the Moran Law Group |
Tax penalties
The treatment of unsecured tax penalties in bankruptcy is linked to the dischargeability of the tax to which they are related.
Chapter 7
- Penalties associated with priority (nondischargeable) taxes are not dischargeable;
- Penalties related to dischargeable taxes are dischargeable, too.
- Penalties associated with taxes arising more than three years before the bankruptcy are dischargeable, even if the tax to which it is linked isn't dischargeable.
Chapter 13
- All unsecured penalties are dischargeable. Penalties can be paid at the same rate as non tax claims, usually a fraction on the dollar.
- No new penalties accrue on prepetition taxes during the Chapter 13 payment plan.
If a tax lien attaches to actual equity in assets, under the current law, the penalties are secured as well as the tax, even if they would be dischargeable if not secured.
See Is This Debt Secured?
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