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4 Criteria For Tax Debt To Be Dischargeable Under Bankruptcy

Picture of a tax form and money.

Many people who struggle with their finances and debt, also struggle with tax debt and turn to bankruptcy as a solution to their tax problems. Although bankruptcy can help with many types of tax issues, it cannot solve all tax debt problems. Knowing how bankruptcy works when it comes to tax debt is critical in deciding whether bankruptcy is the right solution for your specific situation.

Bankruptcy and Your Taxes

In bankruptcy, tax debt is treated rather differently than other types of debt, such as medical bills and credit card debt. In determining whether tax debt qualifies for a discharge, it is considered separately according to each tax year and tax return. Therefore, some tax debt may qualify for a discharge and some will not.

In general, in order for tax debt to be dischargeable under the bankruptcy code, it must meet several criteria:

  1. The person filing for bankruptcy must have completed and filed tax returns for at least two years before filing the bankruptcy petition.
  2. The tax debt in question must have been due for a minimum of three years. Any tax debt due for less than three years after the tax return was due (including extensions) is not dischargeable.
  3. There must be no attempt on the bankruptcy filer to commit tax fraud or evade his or her taxes.
  4. The Internal Revenue Service must have assessed the tax debt at least 240 days before the bankruptcy petition was filed. If, for whatever reason, the IRS stopped attempting to collect the tax debt during this time, the 240-day period may be extended.

If the tax debt meets all of these criteria, bankruptcy can discharge the tax debt, including any late payment penalties associated with it. Once the tax debt is discharged, the IRS can no longer collect the amount owed. However, if the debt in question does not meet these criteria, filing for bankruptcy will have no affect on it.

Consult an Experienced Attorney Today

If your tax debt does not meet the above criteria, bankruptcy may still be able to help, especially if you are struggling with other debts. Since bankruptcy would eliminate most of your other debt, it would free up more of your finances to devote to paying your back taxes.

In addition to bankruptcy, there are other options for dealing with tax debt. In some cases, you may be able to negotiate with the IRS to settle the debt for a fraction of what you owe. Additionally, it is possible to work out a payment plan with the IRS.

For people struggling with tax debt, there are many options. If you are in this situation, the right option for you will depend on several factors. The advice of an experienced bankruptcy attorney can be invaluable in determining the best course to take. At the Law Office of Joel R. Spivack, we focus on helping clients get through challenging financial times. If you need guidance and support for your unique situation, reach out today.

I am happy to help you regain control of your financial situation. I offer a free, face-to-face consultation at my Cherry Hill, NJ office. I will provide you with honest answers to your questions and let you know what I can do to make the process go as smoothly as possible for your specific issues. You can reach me by phone at 856-488-1200 or you can also fill out my online contact form here.We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code