There is a great deal of stress upon those people considering bankruptcy. People cannot afford to pay their bills. Creditors begin to call, harass and threaten as people try to juggle the issue of how and when to pay their bills. Feeding their family and maintaining a home are also high on the list of priorities. If an IRS debt is also involved, the stress can be overwhelming.
Bankruptcy may be able to help a person with their tax debts. It is not the ideal place to fight tax debts, however, since they are not dischargeable.
If you file bankruptcy, your credit cards and medical bills can be discharged. This will give you the opportunity to use that extra income to pay off your tax debt. Of course, you should discover whether or not your tax debts meet the requirements of the bankruptcy code for a discharge.
There are five requirements for a debt to the IRS to be dischargeable in Chapter 7 Bankruptcy:
First, they must be income taxes. Payroll taxes, excise taxes from a business and others will not be discharged.
Secondly, the debt must have come at least three years prior to the bankruptcy. Usually, the date for a tax is April 15 the year after you incurred the debt.
If you owe taxes on income earned in 2009, for instance, the date the tax came due would normally be April 15, 2010. Therefore, a person seeking to discharge this debt could not file for bankruptcy until April 15, 2013 at the earliest.
Third, you must have filed a return on the debt at least 2 years prior to filing bankruptcy. In this example, to meet the third prong, you must have filed your tax return for 2009 prior to April 15, 2011 in order for it to be discharged. People who owe taxes and fail to file the return on them get punished later in trying to discharge these debts in bankruptcy.
The fourth requirement if you hope for a discharge on your tax debt is that a debtor cannot have committed fraud or tried to evade paying the tax debt. Trying to defraud the government by filing tax returns with false social security numbers or other methods will make you ineligible for a discharge on this tax debt.
Lastly, you must pass the 240-day rule. This states that if the tax was assessed within the 240 days prior to filing, then it will not be eligible for a discharge. You can request documentation from the IRS that will tell you when the tax was assessed.
If the five requirements are met, then the tax debt can be discharged in bankruptcy. There are more considerations, however, that can complicate the matter.
The first is that Chapter 7 will not get rid of a federal tax lien. If the IRS has recorded a tax lien on your property, then this discussion is moot.
Another factor that makes discharging tax debts difficult is that you must sue the IRS in court and win. This involves proving all five requirements and getting an order from a bankruptcy judge as to the ruling.
This can be quite costly and will go beyond the low flat-fee your bankruptcy attorney charges for a petition that does not include a battle with the I.R.S. If your tax debt is substantial enough and fits into all of the above requirements, it could be well worth the investment.
If the debt is small enough, it may be best to find some other way to get out from under the debt. As mentioned above, when you file a Chapter 7 and get rid of your other debts, you may then have the capacity to pay off the IRS. Also, a Chapter 13 Bankruptcy can also be used to give you 3-5 years to pay off the tax if the IRS will not work with you on payments.
Ignoring these problems usually does not work. Many solutions exist to help you if you are drowning in debt. If you are facing bankruptcy and owe the IRS, look to these five factors to see if that debt might be discharged. And talk with your attorney about the chance to fight this.
Bankruptcy may be able to help a person with their tax debts. It is not the ideal place to fight tax debts, however, since they are not dischargeable.
If you file bankruptcy, your credit cards and medical bills can be discharged. This will give you the opportunity to use that extra income to pay off your tax debt. Of course, you should discover whether or not your tax debts meet the requirements of the bankruptcy code for a discharge.
There are five requirements for a debt to the IRS to be dischargeable in Chapter 7 Bankruptcy:
First, they must be income taxes. Payroll taxes, excise taxes from a business and others will not be discharged.
Secondly, the debt must have come at least three years prior to the bankruptcy. Usually, the date for a tax is April 15 the year after you incurred the debt.
If you owe taxes on income earned in 2009, for instance, the date the tax came due would normally be April 15, 2010. Therefore, a person seeking to discharge this debt could not file for bankruptcy until April 15, 2013 at the earliest.
Third, you must have filed a return on the debt at least 2 years prior to filing bankruptcy. In this example, to meet the third prong, you must have filed your tax return for 2009 prior to April 15, 2011 in order for it to be discharged. People who owe taxes and fail to file the return on them get punished later in trying to discharge these debts in bankruptcy.
The fourth requirement if you hope for a discharge on your tax debt is that a debtor cannot have committed fraud or tried to evade paying the tax debt. Trying to defraud the government by filing tax returns with false social security numbers or other methods will make you ineligible for a discharge on this tax debt.
Lastly, you must pass the 240-day rule. This states that if the tax was assessed within the 240 days prior to filing, then it will not be eligible for a discharge. You can request documentation from the IRS that will tell you when the tax was assessed.
If the five requirements are met, then the tax debt can be discharged in bankruptcy. There are more considerations, however, that can complicate the matter.
The first is that Chapter 7 will not get rid of a federal tax lien. If the IRS has recorded a tax lien on your property, then this discussion is moot.
Another factor that makes discharging tax debts difficult is that you must sue the IRS in court and win. This involves proving all five requirements and getting an order from a bankruptcy judge as to the ruling.
This can be quite costly and will go beyond the low flat-fee your bankruptcy attorney charges for a petition that does not include a battle with the I.R.S. If your tax debt is substantial enough and fits into all of the above requirements, it could be well worth the investment.
If the debt is small enough, it may be best to find some other way to get out from under the debt. As mentioned above, when you file a Chapter 7 and get rid of your other debts, you may then have the capacity to pay off the IRS. Also, a Chapter 13 Bankruptcy can also be used to give you 3-5 years to pay off the tax if the IRS will not work with you on payments.
Ignoring these problems usually does not work. Many solutions exist to help you if you are drowning in debt. If you are facing bankruptcy and owe the IRS, look to these five factors to see if that debt might be discharged. And talk with your attorney about the chance to fight this.
About the Author:
If you feel you are drowning in debt, call a Seattle Bankruptcy Lawyer today. It is quite possible that many of your financial problems can be eliminated in a Chapter 7 Bankruptcy.. This article, Discharging Taxes In Bankruptcy is available for free reprint.
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