Bankruptcy and Tax Discharge
If you are buried in debt it is likely you are also behind on your taxes. If you have substantial tax debt you may even be subject to wage garnishment, property seizure or an IRS tax lien. You may think that the IRS would never be willing to forgo collecting unpaid taxes, but this is not the case. In fact, it is possible to discharge some tax debts through bankruptcy.
Filing for Chapter 7 or Chapter 13 bankruptcy may provide you with some tax relief. Not all tax debt, however, is able to be discharged. This list below provides several guidelines about which taxes are eligible:
- Type of Taxes: although income taxes are dischargeable, other types of tax obligations like payroll taxes, business taxes and sales taxes are not dischargeable
- Due Date: the taxes must have been due at least three years prior to your bankruptcy filing
- Return Filing Date: you must have filed the related tax return at least two years prior to your bankruptcy filing
- Tax Assessment Date: the IRS must have assessed the taxes 240 or more days before your bankruptcy filing
Additionally, your tax return must not be fraudulent, and you must not be found guilty of tax evasion.
If you file for a Chapter 13 bankruptcy, non-dischargeable tax debt can also be part of your repayment plan. Accumulation of additional tax penalties and interest will also be stopped.
An experienced bankruptcy attorney can provide further information about your options for tax debt relief.
Source: Bankruptcy and Tax Debts, William Perez
