With unemployment at an all time high, more and more San Diegans are looking to Federal Bankruptcy protection than ever before. Whether because they are overwhelmed with credit card debt, behind on home mortgage payments or living in fear of having their car repossessed, the Federal Bankruptcy Code provides exemptions and protection from creditor harassment, home foreclosure, car repossession and a whole host of other issues that San Diegans are facing in these troubled times. Recently, we have even seen Bankruptcy law firms seeking Bankruptcy Protection.
The broad rule in bankruptcy is that tax debts are not dischargeable in Chapter 7, Chapter 11, or Chapter 13 bankruptcy proceedings and that these debts have the eighth priority for payment of claims. There are, however, a number of exceptions to this broad rule under which certain income tax debts may be dischargeable by an individual taxpayer in a Chapter 7 bankruptcy proceeding. If the obligation is discharged, then creditors may not attempt to collect the debt.