Tax debt to the IRS can be a headache, in many ways. Debts generated by income taxes that have not been paid correctly are very common. Although the amount is not too high, the burden of a tax debt can feel like a real stumbling block. Fortunately, filing for bankruptcy can be a solution to stop harassment from the Internal Revenue Service and resolve the debt problem. However, not all debts are dischargeable in the bankruptcy process, although relief is likely to occur. To understand if bankruptcy erases tax debt, be sure to read this article on our blog.
Bankruptcy erases tax debt depending on the chapter
Understanding how taxes and taxation work can be extremely complex for non-specialists. If we add to this that the bankruptcy process takes time and effort, it can surpass anyone. Therefore, a bankruptcy attorney can bring relief to the great complexity of this entire process. By filing for bankruptcy, it is possible to get rid of a significant portion of your IRS tax debt. In some cases it is even possible to discharge the entire tax debt, although this will depend on each particular case. One piece of information that can be decisive is the age of the debt and the moment in which the bankruptcy filing is made.
Whether, due to the characteristics and financial situation, and the convenience of each case, you file for Chapter 7 or Chapter 13 bankruptcy, in both cases it is possible to discharge tax debt. In general, the basic requirements that must be met when bankruptcy erases tax debt are as follows:
- Debt owed to the IRS must be less than 3 years old.
- Questionable tax returns must not have been filed more than 2 years prior. years from the filing of the bankruptcy.
- Taxes paid must be dated at least 240 days prior to the time the bankruptcy is filed.
- The person filing the bankruptcy cannot be involved, neither in the present nor in the past, in cases of tax evasion or fraud.
After these more general issues, there are particularities depending on the chapter used to file bankruptcy. Depending on this issue, some debts may be discharged while others may not. For example, in general chapter 7 only admits the discharge of the tax debt that corresponds to income taxes, not the rest of the imputations. Also, other tax debts such as tax liens and real estate liens may not be discharged during the bankruptcy process. As each case is particular, it is best to consult a bankruptcy attorney to obtain accurate information about whether bankruptcy erases the tax debt in your particular scenario. At Bankruptcy Now we can advise you with all the information you need about it.
Other considerations about whether bankruptcy erases tax debt
There are some complications that can arise in the bankruptcy process that prevent the discharge of the tax debt. If you have been elected to discharge your debt, but the IRS has challenged a lien on your property, the situation may not be resolved favorably. This is so because liens are not discharged under Chapter 7 bankruptcy, and must be resolved outside of this process. It is likely that in this case you will have to face the debt contracted with the sale of assets in your possession.
On the other hand, under chapter 13 the person must still pay the debts they owe, but with certain facilities and deductions. This may vary according to various criteria and particular financial circumstances. It is also worth clarifying that this is valid both in cases where the tax debt has been presented as a priority claim, or as a non-priority non-guaranteed claim. Therefore, in any case you can count on certain advantages when dealing with your debt with the IRS.
Knowing that bankruptcy erases tax debt under certain conditions, it is also important to clarify what types of debts are generally not dischargeable. Trust fund taxes, property taxes, sales taxes, some employment taxes, and non-punitive tax penalties received less than three years before bankruptcy filing are some of the tax debts that cannot be discharged in the bankruptcy process. This is generally independent of the type of item being used for filing, so you should consider it before deciding to file for bankruptcy.
Either way, despite not being able to discharge all taxes, it is possible to obtain certain tax relief through the bankruptcy process. In general, a tax payment plan can be obtained to pay off the debt with certain facilities. The interest rate of this plan is usually lower than what the IRS charges in normal circumstances, so it is still an additional benefit for the debtor. It is also possible to negotiate some reductions in the penalties imposed by the IRS, which are often significant in financial and economic terms. Finally, it is worth clarifying that filing bankruptcy can stop an execution process that the IRS has initiated to collect back taxes.
As you can see, it is true that bankruptcy erases tax debt, but only under certain conditions and depending on each case. Although it is possible to obtain other benefits such as those mentioned above, this all depends on the negotiating skills of the lawyer. Therefore, having the help of a trained and experienced professional can make a difference when discharging financial debt and obtaining tax relief. Michael J. Brooks is one of the most recognized bankruptcy attorney in Miami, with years of experience and a track record to back him up. Do not hesitate to contact BankruptcyNow to have an initial interview and begin to envision the best solution for your case. A fresh start thanks to a bankruptcy process is a possible solution to his financial problems.