Talk to our tax assistance experts! Schedule A Call
Talk to our tax assistance experts! Schedule A Call
Despite what you may have heard over the radio, eliminating tax debts in bankruptcy is not as simple as it sounds. In fact, most tax debts can’t be wiped out in bankruptcy. The debts will still be there at the end of a Chapter 7 bankruptcy or they’ll have to be repaid in full in a Chapter 13 bankruptcy repayment plan.
A Chapter 7 bankruptcy is likely the better option if you need to discharge tax debts although only if your debts qualify for discharge and you are eligible for Chapter 7 bankruptcy. Two qualifiers that unfortunately eliminate the majority of people looking to discharge tax debts.
You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true: The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy. You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can’t help.
To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. (In most courts, if you file a late return (meaning your extensions have expired and the IRS filed a substitute return on your behalf), you have not filed a “return” and cannot discharge the tax. In some courts, you can discharge tax debt that is the subject of a late return as long as you meet the other criteria.)
