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Under this law, no individual can get any sort of discharge for his non-filed taxes and late filed returns. Even the penalties cannot be discharged.
The process begins by filing a petition in the tax court. A list of creditors, list of assets and liabilities, current income and expenditure as well as the financial statement needs to be filed. A proposed payment plan should also be prepared and submitted along with other documents. If an individual’s monthly income is less than the state's median income, then taxes can be paid over five years. But if the individual’s monthly income is higher than the state's median income, the taxes have to be repaid in three years.
The plan is shared with the trustee who studies it and then shares it with the creditors. If everyone agrees with the plan, then the debtor can keep all assets during the period of the plan. However, if any objection from the creditors is raised, the plan must be modified.
Under the new regulations, the tax returns of the previous year must be paid before filing for bankruptcy. If the returns are not filed, one cannot go ahead with the bankruptcy procedures. In order for a Chapter 13 plan to be confirmed, one must file all tax returns for a four year period before filing for bankruptcy. If the returns are not filed, a Chapter 7 discharge will not be granted and a Chapter 13 plan will not be confirmed. Further, if creditors request for a copy of the returns, then one is bound to provide it for them.
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