How is a Chapter 13 Beneficial if I Owe Income Taxes?

Both Chapter 7 and Chapter 13 can discharge certain income taxes. However, many income taxes cannot be discharged. When you owe nondischargeable income taxes, filing a Chapter 13 stops collection actions by the government, such as garnishments, or levies, against your wages and bank accounts. You can pay off your nondischargeable income tax debt over the three to five years of your Chapter 13 plan. Any unpaid penalties as of the Chapter 13 filing date are usually dischargeable, as is any interest that accrues from the filing date forward. Not having to pay all of your penalties and interest can result in significant savings, and can be a good reason to file a Chapter 13.

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