Eliminating tax debts through bankruptcy is possible, but there are a lot of rules that govern whether or not you can in your specific situation. In some situations, even if you file for bankruptcy, you might still owe tax debts. If you are considering filing bankruptcy, here is what you need to know about filing and how it can impact tax debts.
What Are the Rules for Discharging Tax Debts?
If you are filing for Chapter 7 bankruptcy, you have to meet several requirements. If you fail to meet any of them, it is highly unlikely that the court allows a discharge.
One of the first requirements is that the tax debt is actually an income tax debt. If the tax debt is something else, such as fraud penalties, they cannot be discharged. The debt also has to be three or more years older. Taxes later than that must be repaid. Other requirements include:
- There was no fraud. If you attempted to commit fraud or evade taxes, a bankruptcy cannot help your situation.
- You have already filed a return. If you have not filed a return for the debt you want discharged two or more years ago, the debt cannot be discharged.
- The debt must be at least 240 days old. The debt must have been assessed by the Internal Revenue Service at least 240 days prior to your petition for bankruptcy.
If you do not meet these requirements, talk to your tax attorney about other ways you can handle your tax debt.
What If You Are Filing Chapter 13?
Chapter 13 debts are viewed differently from Chapter 7 when dealing with tax debts. Since you are agreeing to repay your debts through the Chapter 13 filing, you also are agreeing to pay off your tax debts.
When you file for bankruptcy, you must submit a bankruptcy repayment plan that also accounts for the tax debts. The court will review your plan and determine whether or not it is acceptable. If not, you will have to change your repayment plan.
At any point, if you are unable to continue your repayment plan, you can request a hardship discharge of your remaining debts. If your current situation meets the requirements for tax debts to be discharged, you might be able to eliminate some of the debts then.
Before taking any action, review all of your options with your tax attorney. He or she can help determine if your debts meet the requirements for discharge and help you explore other options for handling them, if necessary. To learn more, visit a website like http://www.wflaw.net.