Thanh N
14.08.14 01:50 AM Comment(s)

When people take on debt, they usually intend to make the debt payments on time. However, due to financial challenges, they may not be able to pay the amounts regularly and, ultimately, may choose to file for bankruptcy.

Chapter 7 bankruptcy is a common type of bankruptcy that is preferred by individuals, as well as businesses, to manage overwhelming amounts of debt. In this type of bankruptcy, a trustee is appointed to convert the debtor’s assets into cash, which will then be distributed to the creditors. Chapter 7 provides relief to solvent and insolvent debtors, irrespective of the amounts owed by them. However, it is recommended that the person does not incur more debt in order to ensure a fresh financial start.

Sometimes, a person may file for bankruptcy due to unpaid federal tax debt. In such situations, the person should increase the estimated tax payments and the withholding of taxes from one’s wages or salary. After filing for bankruptcy, the person will continue to receive federal tax refunds to which they are entitled. However, these refunds may be delayed. The delays may be caused when the refunds are used to pay the tax debts or due to turnover requests by the Chapter 7 Trustee. When a person does not get the tax refund and believes that it has been delayed, offset against the tax debts or otherwise turned over to the trustee, the person can find out the status of his or her refund by contacting the IRS’s Centralized Insolvency Operations Unit. The person may also check his or her refund status via an online tool, “Where’s My Refund?” which is located on the IRS website.

After a successful completion of a Chapter 7 bankruptcy, the person will receive a discharge of all eligible debts. This releases the debtor from personal liability for certain debts. However, discharge of a federal tax debt may vary from case to case. Knowledge of the bankruptcy laws may help a person determine if the federal tax debt can be discharged in his or her situation.

Source:, “Chapter 7 Bankruptcy – Liquidation Under the Bankruptcy Code,” July 30, 2014