Eliminating Tax Debt in Bankruptcy
Contrary to popular belief, bankruptcy can clear some types of tax debt. At Brian R. Cahn & Associates, LLC our lawyers have helped many clients in North Georgia reduce or eliminate money owed on back taxes by using protections afforded under bankruptcy law. Here, we provide some basic information about discharging income tax debt in Chapter 7 or Chapter 13 bankruptcy.
What Type of Tax Debt is Dischargeable in Bankruptcy?
In order to discharge income tax debt in bankruptcy, specific requirements must be met in either Chapter 7 or Chapter 13 proceedings. These requirements apply to IRS income tax debt as well as state and local income tax debt.
- Your tax returns must have been due and owing for more than three years before your bankruptcy petition was filed.
- Your tax returns must have been filed by you (not a taxing authority) more than two years before your bankruptcy petition.
- The tax you owe must have been assessed against you at least 240 days before your bankruptcy petition is filed. The “assessment” refers to the IRS’s internal acknowledgment of the overdue tax debt.
- Your tax returns must have been truthful and not fraudulent.
- You must not have been intentionally attempting to evade or defeat the tax when you failed to pay.
When all of the above requirements are met, your tax debt may be discharged at the conclusion of bankruptcy proceedings, along with any penalties on taxes eligible for discharge. With a Chapter 7 bankruptcy, the debt may be wholly discharged, and with a Chapter 13 bankruptcy, a repayment plan will allow you to make affordable payments toward the tax debt without penalties or interest. Once there is a discharge of tax liability, you are no longer responsible for paying the taxes and the government may not take further action against you.
What Type of Tax Debt is Not Dischargeable in Bankruptcy?
The following types of tax debt are not dischargeable in bankruptcy:
- Tax debts from unfiled tax returns
- Trust fund taxes
- Taxes withheld from an employee’s paycheck by the employer
- Tax penalties from tax debt that is ineligible to be discharged
If your tax debt is not eligible for discharge in bankruptcy, there are other options, such as entering into a payment agreement with the IRS or making the IRS an offer in compromise, which will result in the settlement of the tax debt for less than the amount owed. Please see our debt settlement page for more information about negotiating debts.
Talk to an Experienced Bankruptcy Attorney about Your Tax Debt
If you have significant tax debt, you could benefit from debt settlement or bankruptcy. Please contact Brian R. Cahn & Associates, LLC to learn more during a free initial consultation.