Tax debt can be a serious issue for individuals and businesses alike. It can cause financial hardship, increase penalties and interest, and ultimately result in a lien or other collection action. For example, in estate planning, unpaid taxes can create a significant financial burden for families and require probate proceedings. With the right help, it is possible to discharge some tax debt in bankruptcy.
In many cases, the best solution for resolving tax debt is to file for bankruptcy and discharge the taxes due. When individuals file for bankruptcy, the court discharges any eligible debts. The process is designed to give debtors a fresh start and the ability to begin rebuilding their financial future.
Individuals and real estate professionals, and businesses may be able to discharge their tax debt in bankruptcy. Depending on the type of taxes owed and when they were incurred, the court may allow them to be discharged. It is important to note that certain taxes are not dischargeable in bankruptcy, like student loans and most taxes related to fraud or other criminal activities.
Types of Bankruptcy for Discharging Taxes
- Chapter 7 Bankruptcy- In Chapter 7 bankruptcy, the court will review each debt to determine whether it is eligible for discharge, and it must have been due at least three years before the bankruptcy petition filing. In addition, the taxes must have been assessed at least 180 days before filing for bankruptcy, and no tax return may have been filed late within two years of filing.
- Chapter 13 Bankruptcy - In Chapter 13 bankruptcy, an individual can also discharge taxes. However, the rules are different than those for Chapter 7. For example, only income taxes can be discharged in a Chapter 13 bankruptcy. To be eligible for discharge, the taxes must have been due at least three years before filing for bankruptcy, and the tax return must have been filed on time within two years of the filing.
Considerations for Discharging Taxes in Bankruptcy
- Eligibility Requirements - Before filing for bankruptcy to discharge taxes, it is important to understand the eligibility requirements. It is essential to know if the taxes due are eligible for discharge in bankruptcy and the timing requirements and other rules that must be met. Here is where the power of attorney and legal counsel can be very beneficial in helping determine the best course of action for discharging taxes.
- Timing Requirements - In most cases, taxes must be due at least three years before filing for bankruptcy to be eligible for discharge. It is also important to note that the tax return must have been filed on time within two years of the filing. Late filings may disqualify the taxes from being discharged in bankruptcy.
- Tax Returns Filing Requirements - The IRS has specific filing requirements for those trying to discharge taxes in bankruptcy. All tax returns must be filed on time, and any due taxes must have been assessed at least 180 days before filing for bankruptcy.
- Tax Lien Considerations - It is also important to consider any tax liens that may be in place. Any unpaid taxes with a valid lien will not be discharged in bankruptcy. It is important to investigate this before filing for bankruptcy to avoid surprises.
Conclusion and Call to Action
In conclusion, when taxes are successfully discharged in bankruptcy, individuals can be relieved of the burden of having to pay back the debt. However, can you meet all eligibility requirements, such as filing all necessary tax returns on time and having the taxes due at least three years before filing for bankruptcy?
At Law Offices of James C. Shields, we help people who cannot pay their debts and offer payment plans to make it easier. We guarantee our work, and our fees are reasonable. Contact us today to learn more about how we can help you discharge taxes in bankruptcy.