Legal Question in Bankruptcy in California
Discharging penalties & Interest in Chap. 7
The bankruptcy code is clear in that TAXES can not be discharged until they are 3+ years old. Does that also mean that penalties and interest are not dischargable until 3+ years old? Is it statute that combines P&I with the actual base tax?
1 Answer from Attorneys
Re: Discharging penalties & Interest in Chap. 7
Actually, taxes not dischargeable in a Chapter 7 can be discharged in a Chapter 13. You might want to file a Chapter 7 first, get your discharge, and if the IRS claims you still owe any taxes, then do a Chapter 13. Generally interest is dischaged with the principal. Penalties are a trickier issue--sometimes penalties are dischargeable in a chapter 7 and sometimes not. But if they are not, then do a 13. Actually, the IRS usually is willing to work with debtors and their attorneys when a bankruptcy is filed and will often work out a compromise so you won't have to file a chapter 13.
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