One of the things that people hear about bankruptcy is that it usually doesn’t discharge some debts owed to the government, like taxes. Even if you have a large burden of tax debt that is making it extremely difficult to reconcile your finances, bankruptcy can’t always help. However, here is some good news: You actually can eliminate and/or get some immediate relief from some tax debts in bankruptcy under certain circumstances.
How Can I Wipe Out My Tax Debt?
Whether or not you can wipe out or put off tax debt collection will depend on which bankruptcy plan you choose, what type of tax you owe, how old your tax debt is and whether you filed a tax return timely. In bankruptcy you can discharge federal income taxes only if:
- You filed tax returns for at least two years before filing for bankruptcy and they were timely.
- The tax was not assessed due to audit.
- The tax debt is at least three years old.
- You meet the 240-day rule, which means the IRS assessed the debt at least 240 days before you filed for bankruptcy.
- You did not commit a crime like tax evasion, fraud, or identity deception.
- The debt is for income taxes only. Other types of taxes don’t necessarily qualify for discharge.
Can I Eliminate Payroll Taxes or Tax Penalties?
Unlike federal income taxes, payroll taxes cannot be wiped out in Chapter 7 bankruptcy. Tax penalties are eligible to be discharged when the taxes that they are based upon are dischargeable. In certain other circumstances, penalties associated with non-dischargeable taxes may also be discharged. You may be able to eliminate tax penalties on previously unpaid income tax but not payroll tax. Tax penalties for fraud are never eligible for discharge by bankruptcy because they involve a crime.
What If I Have a Tax Lien?
If the IRS has already placed a tax lien on your property prior to the point of filing for bankruptcy, then the situation gets more complicated. A bankruptcy can discharge personal liability on a debt, but the tax lien will remain attached to anything you own, and you will still owe taxes related to it, even after your case is discharged. This is a good reason to act urgently and contact a bankruptcy attorney before things go too far.
If I Need to Wipe Out Tax Debt, What Should I Do Next?
Eliminating tax debt is possible but it is one of the most difficult things you can attempt in bankruptcy. It is a tricky process to navigate alone because you will need to deal with the United States Internal Revenue Service, provide many types of proof and documentation and avoid making critical errors that could put your bankruptcy discharge in jeopardy. You will need the advice and guidance of a bankruptcy attorney who can help you pursue eliminating the tax debt you owe. Contact an experienced bankruptcy attorney and ask them about using Chapter 7 bankruptcy to discharge your tax debt.
Sawin & Shea – Indianapolis Bankruptcy Attorneys
Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of the overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process. Please do not hesitate to call us today at 317-759-1483 or send an email for a free consultation. We are ready to help.