Missouri Laws on Bankruptcy and Tax Liens

Missouri Laws on Bankruptcy and Tax Liens

Understanding the intersection of bankruptcy laws and tax liens in Missouri is crucial for those facing financial difficulties. Bankruptcy can offer individuals and businesses a way to reorganize their debts or seek a fresh start, but tax liens can complicate the process. This article outlines how Missouri laws handle bankruptcy and tax liens, providing essential information for anyone considering these options.

In Missouri, when individuals file for bankruptcy, they may encounter various types of tax liens. A tax lien is a legal claim by a government entity against an individual’s properties due to unpaid tax obligations. In essence, it serves to protect the government’s interest in unpaid taxes. It’s important to understand how these liens are treated in bankruptcy proceedings.

Missouri law treats tax obligations differently depending on the type of bankruptcy filed. The two primary chapters in U.S. bankruptcy law that individuals in Missouri can file under are Chapter 7 and Chapter 13:

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, many debts can be discharged, allowing individuals to eliminate most unsecured debts. However, tax debts typically cannot be wiped out unless they meet specific conditions:

  • The tax debt is at least three years old.
  • The tax return was due at least two years before filing for bankruptcy.
  • The tax was assessed by the IRS at least 240 days before filing.
  • The taxpayer must not have committed fraud or willful tax evasion.

If tax liens are in place prior to filing for bankruptcy, those liens remain attached to the property, even if the underlying tax debt is discharged in a Chapter 7 filing. Therefore, it is advisable for individuals to address outstanding tax liens before proceeding with bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy offers a repayment plan that allows individuals to pay off their debts over three to five years. Tax debts, unlike in Chapter 7, can gain a more favorable treatment under this chapter:

  • Individuals can include overdue tax debts in their repayment plans.
  • If individuals adhere to the repayment plan, they may discharge certain tax debts after the plan's completion.

Tax liens can be more effectively managed in Chapter 13, as they may be removed from the property upon completion of the repayment plan, assuming the tax debts have been addressed. This makes Chapter 13 a viable option for those struggling with tax-related debt in Missouri.

Filing Procedures and Protection Against Tax Liens

Upon filing for either Chapter 7 or Chapter 13 bankruptcy, an automatic stay is imposed. This stay halts all collection actions, including tax lien enforcement, allowing debtors some respite from aggressive actions taken by creditors. It's essential to act promptly when dealing with tax liens and bankruptcy to ensure compliance with federal and state laws.

Conclusion

Navigating Missouri laws on bankruptcy and tax liens can be complex. Understanding the distinctions between Chapter 7 and Chapter 13 can help individuals and businesses make informed decisions. It's advisable to consult with a bankruptcy attorney who can provide tailored advice based on personal circumstances and ensure that all legal obligations and rights are adequately addressed.

By staying informed and proactive, individuals can better manage their financial futures while dealing with bankruptcy and potential tax lien issues in Missouri.