Can Bankruptcy Get Rid of My Tax Debt? Skip to main content

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Can Bankruptcy Get Rid of My Tax Debt?


You may have heard that, even if you file for bankruptcy protection, you will not be able to discharge income taxes. This is simply not true. If the taxes are old enough, you may be able to discharge all or most of your tax debt. In many cases, tax liability will not be dischargeable because the debt is too new, as explained below, or because the taxes owed are in one of the categories which cannot be discharged according to the Bankruptcy Code.

As you may have discovered, the government has some powerful means to collect on taxes owed. Apart from taking tax refunds in order to apply them to taxes owed, the government can garnish your wages, place a lien on your assets, or even seize property like your bank accounts, your house, or your car. What's more, the longer you let past due taxes lie, the harder it will become to pay them back, since the government may continue to add to the debt through interest and penalties. Understanding what past due taxes you will be allowed to discharge through bankruptcy can be tricky, so it is a good idea to speak to a lawyer about past due taxes in order to understand when and how bankruptcy can help you. Basically, you will be allowed to discharge those tax debts that meet certain conditions specified in the bankruptcy code.

The first condition is that the tax must have been due three years before the bankruptcy filing. Taxes for 2007 which were due on April 15, 2008 will satisfy this requirement in a bankruptcy filed on April 15, 2011 or later. But what if you receive an extension on the taxes? In that case, the three year period will date from the extension, not from the original due date. Thus, in the previous example, if you received an extension on your 2007 taxes until April 15, 2009, the taxes would not become eligible for discharge until April 15, 2012.

The second condition is that the tax return must have been filed two years before the filing of your bankruptcy. In reference to this rule, note that if you file an amended return, the two year period begins from the date of that amendment.

Third,  the tax assessment must predate the bankruptcy by 240 days.  Tax assessment is not always straightforward; it will generally depend on the practices of the relevant taxing authority. Generally, for federal taxes, the tax assessment will be around the date you filed the return if you file on time. In order to determine the exact date, you may obtain a copy of your tax transcript.

Another condition is that the tax return you filed must not be fraudulent. Finally, in order for a tax liability to be discharged, you must not be found to have attempted tax evasion.

If your past due taxes meet all these conditions, filing for bankruptcy can act as a powerful tool to tackle a difficult tax liability situation. A bankruptcy lawyer will help you take into account your possibilities for discharging tax liabilities. If you have significant tax debt, don't rule out bankruptcy. Talk to an experienced bankruptcy attorney today to find out if you can discharge your tax liability once and for all.

If you are in North Carolina and have tax debt, call the Law Offices of John T. Orcutt today to discuss your options. Call +1-919-646-2654 to set up

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