Filing for bankruptcy is an option for many people struggling to pay their debts. While many debts are dischargeable via bankruptcy, not all are. For example, people cannot seek relief from certain tax obligations by filing bankruptcy actions, as clarified by a California court in a recent ruling issued in a bankruptcy matter. If you have debts that you are unable to pay, you may be eligible to file for bankruptcy, and you should speak to a California bankruptcy attorney as soon as possible.
Procedural Background of the Case
It is alleged that the debtor filed for Chapter 11 bankruptcy in November 2015. The action was converted to a Chapter 7 bankruptcy, and the court ultimately ordered a discharge. In August 2021, the debtor received a notice from the IRS informing him that he owed approximately $10,000 in taxes for the 2012 and 2013 fiscal years. He subsequently moved to open his bankruptcy case.
Reportedly, after the court granted his motion, he filed an adversary complaint against the IRS, asking the court to issue a declaratory judgment that his 2012 and 2013 tax obligations were discharged by his Chapter 7 bankruptcy proceeding. The IRS filed a motion to dismiss, which the court granted. The debtor then appealed.
Debts Dischargeable in Bankruptcy
On appeal, the debtor argued that the bankruptcy court erred in finding that his 2012 and 2013 tax debts were not dischargeable as a matter of law. The court noted that it reviews legal conclusions de novo and factual determinations for clear error. The court ultimately rejected the debtor’s reasoning and affirmed the bankruptcy court ruling.
In doing so, the court turned to the bankruptcy code, which expressly states that Chapter 7 bankruptcy will not relieve a debtor from the duty to pay taxes as defined by the code. The court further explained that pursuant to the code, taxes that were due within three years before the date of the filing of the Chapter 7 bankruptcy petition or were assessed within 240 days before the petition was filed cannot be discharged by Chapter 7 bankruptcy proceedings.
In the subject case, the court found that both the 2012 and 2013 taxes were due within three years before the debtor filed his Chapter 11 bankruptcy action and noted that the conversion from Chapter 11 to Chapter 7 did not impact the three-year time frame. Thus, they were not dischargeable as a matter of law, and the court affirmed the bankruptcy court ruling.
Talk to a Trusted California Bankruptcy Attorney
Bankruptcy is an option for many people who cannot meet their financial obligations, but it is important for people to understand what debts are dischargeable in bankruptcy and what debts will survive. If you have questions about whether bankruptcy could be an option for you, it is in your best interest to talk to an attorney. Matthew D. Roy is a trusted California bankruptcy lawyer who can assess the facts of your case and assist you in seeking any relief available. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a conference.