Tax Debt Bankruptcy
Can I Discharge or Wipe Out Back Tax Debt in Bankruptcy?
It is possible to discharge or wipe out your federal and state income tax debts in a Chapter 7 Bankruptcy but it is not easy to qualify. In a chapter 7 bankruptcy you generally discharge all of your debts without repayment.
In a chapter 13 bankruptcy you make payments on your debts until they are paid in part or in full.
Tax Debt Bankruptcy
To Wipe Out Tax Debt, You Need Chapter 7 Bankruptcy
Generally, when you are considering bankruptcy to wipe out your tax debt you are referring to chapter 7. In order for your tax debt to be discharged or wiped out in a chapter 7 bankruptcy you have to meet the following criteria:
- The taxes are federal or state income taxes. Payroll taxes such as FICA and Medicare withholding, Trust Fund Recovery Penalty, and fraud penalties are not dis-chargeable.
- You must not commit fraud or willfully evade taxes or file a frivolous tax return.
- The original tax return must have been due, but not necessarily filed, at least 3 years prior to your bankruptcy petition filing.
- You must have filed a tax return for the tax year you want to discharge at least 2 years prior to your bankruptcy petition filing. In most courts and in Florida, if you file a return late, meaning after the expiration of any extensions you filed or if the IRS filed a substitute for return for you, then they consider you not having filed a return and will not allow discharge of the tax debt. This is probably the main rule that disqualifies individuals from discharging their tax debt in bankruptcy.
- The “240 day rule”: The tax debt must have been assessed by the IRS 240 days prior to you filing your bankruptcy petition. The assessment means that the IRS states you owe the tax in their records. This time limit is sometimes extended for various reasons such as the IRS suspending collection activity during an offer in compromise, you being out of the country, or you filing a previous bankruptcy petition.
Tax Debt Bankruptcy
Important Note: What Happens If I Discharge My Chapter 7 Bankruptcy
If you are successful in discharging your tax debt in chapter 7 bankruptcy this means that the IRS will no longer actively attempt to collect on the tax debt through wage garnishment, bank levies, and asset seizure. However, if they have already filed a federal tax lien then the federal tax lien will remain on your credit history and if you sell an asset in which you have equity, such as a house, the IRS will be paid from the proceeds.
Considering Bankruptcy To Discharge Your Tax Debt? Call J.David Tax Relief For a 1 Minute FREE Tax Consult Today!
If you are considering bankruptcy to discharge you tax debt call us for a free consultation with our tax attorney to find out if bankruptcy will achieve the best outcome possible or if another tax solution may work better for you. Other relief options include offer in compromise, currently non collectible, and installment agreement.
What Our Clients Have To Say
I felt like Jonathan genuinely cared about my issue and always made time to talk to me when I needed it. I owed taxes to two different states as well as the IRS. Jonathan got my wage garnishment released and resolved my taxes so I no longer have to worry about them. This was a huge burden off of my shoulders. Hire Jonathan if you want fast action and proper action. Just call him and you will see for yourself.
Jonathan was great to work with. From our first conversation I knew he was the right person to get the IRS off my back. He immediately went to work for me and got my wage garnishment released. He was very clear and honest with what I should expect and was easy to get in touch with throughout the entire process. His fees were surprisingly very affordable compared to other tax relief companies and attorneys I had spoken to. I would recommend him without a doubt.