Are you struggling with tax debts and wondering if filing for bankruptcy could be a viable option to get relief? In this article, we will explore the possibility of discharging taxes through bankruptcy and provide some helpful tips to navigate the complex process.
Understanding Tax Debt
The first step in determining whether tax debt can be discharged through bankruptcy is understanding the type of taxes owed. Specifically, income taxes may be eligible for discharge if they meet certain criteria including:
- The unpaid tax debt must have been due at least three years ago
- The taxpayer filed a legitimate return for the taxes and it has been on file with the IRS or taxing authority for at least two years.
- The taxpayer did not commit any fraud nor willful evasion related to their tax return.
Other types of tax debts such as property or payroll withholding taxes are generally not dischargeable via bankruptcy proceedings.
Filing Chapter 7 Bankruptcy
Chapter 7 Bankruptcy involves selling off assets under court supervision and then using that money to pay off creditors. If there is still any remaining balance left after paying all secured claims (e.g., car loan), priority unsecured claims (e.g., back child support payments), and administrative costs, then any remaining unsecured debts (e.g., credit card balances) can likely be discharged—including certain qualifying income tax liability.
However, even when meeting all the prescribed criteria, it’s important to note that there are often exceptions depending on each state/country’s jurisdictional laws; working
with an experienced lawyer who specializes in both taxation law AND bankruptcies is always recommended especially when navigating these complicated topics.
Filing Chapter 13 Bankruptcy
Alternatively, filers may opt instead for chapter 13 if they don’t want to lose their property/assets while still seeking relief from difficult-to-service IRS payment plans. This form typically requires creating a repayment plan over a three to five year period.
The repayment plan will provide the filer with more time and even flexibility when paying off their tax debts. An experienced Chapter 13 Lawyer is invaluable in constructing a feasible repayment plan, but always ensure that before embarking on this path, it’d be wise to weigh the pros and cons of filing chapter 13 bankruptcy versus other options available for you.
In summary, discharging taxes through bankruptcies can be possible in many cases– depending upon various factors such as type of taxes owed or state/country/region jurisdictional laws. Consult an experienced bankruptcy lawyer who specializes in taxation law for sound advice on exploring whether this option would work best for your situation. Keep in note that improper execution could leave one without relief from overwhelming tax debt so ensuring correct execution is critical.
Can I discharge all tax debts in bankruptcy?
Answer: No, you cannot discharge all tax debts in bankruptcy. Only certain types of taxes can be discharged, such as income tax debt that is at least three years old and was properly filed. However, any liability associated with fraudulent or willful evasion of taxes, along with certain property taxes or payroll taxes may not be discharged.
What chapter of bankruptcy is most helpful for discharging tax debts?
Answer: Chapter 7 Bankruptcy is usually the best option for discharging some types of older and unsecured tax debt since it typically provides fast relief from unsecured debt without a repayment plan requirement.
Do I need a lawyer to discharge my tax debts through bankruptcy?
Answer: You don’t necessarily need a lawyer to file for bankruptcy or handle your case; however, consulting with an experienced attorney who specializes in this area can increase your chances of success given the complexities involved and unique nature of each case.