Tax Debt When You Are Bankrupt

It’s no secret that being in debt is one of the most stressful life events one can experience. But for most types of debts, there are solutions. Many creditors, such as credit card companies and medical facilities, will be glad to set up payment plans for you to ensure your debt is taken care of. Some hospitals even have funding available for those who cannot pay their medical bills. You may also be able to discharge unsecured debts through bankruptcy. However, when it comes to tax debts, the federal government can be a little more difficult to work, and tax debts are not dis chargeable through bankruptcy. There are always exceptions, and a Bankruptcy Attorney can help you work with the government to take care of your tax debts.

How are Tax Debts Handled?

While you may not be able to discharge tax debts through a Chapter 13, the amount you owe will be taken into consideration as we design your repayment plan. You may be able to discharge back taxes when you file a Chapter 7, but only if you meet these five criteria:

1. In general, only income taxes may (or may not) be included in a bankruptcy; all other types of taxes are generally excluded.

2. You may not include your tax debt if you’ve committed tax fraud or intentionally evaded paying taxes. In these situations, you’ll also be facing other legal consequences as well.

3. Your tax debt must be at least three years old as of your bankruptcy filing date.

4. You need to have filed a tax return for the year that you owe taxes at least two years prior to filing bankruptcy.

5. You’ll need to meet the “240-day rule,” which means the taxes either need to be not yet assessed or have been assessed at least 240 days before filing bankruptcy.
If you fall far enough behind on your taxes, the IRS may issue a tax lien against your property. In these situations, you may be able to include the taxes in your bankruptcy, but this would not apply to your lien. You’ll still owe the lien amount, but the IRS cannot garnish your wages or take control of your bank accounts to collect the debt. To take care of the lien, you may need to sell your property and pay back the debt, negotiate a payment plan, or even negotiate a settlement for a lower lump sum. This can be tedious and stressful, but may be worth the effort on your part.

Professional Guidance

If you’ve received notifications from the government, especially related to tax debt and liens, it’s important to act quickly. It can be intimidating to deal with government agencies, especially when money is involved. A Bankruptcy Attorney can offer professional advice so that you can confidently move forward and take control of your situation.