Many federal and state tax debts cannot be discharged through bankruptcy. Even when some of these debts will not disappear, bankruptcy offers powerful tools for assisting an individual resolve these debts and protects them from the punitive consequences of owing the government money.
The IRS has means of collection that other creditors do not.
There are countless reasons why a person falls behind on their taxes: job loss, family emergencies, divorce, or unexpected medical bills. Unplanned events can turn our lives upside down. While the collection efforts of your creditors might be held at bay for a time, the IRS is set apart by their unique powers to collect. Their methods include garnishing wages, placing liens against you, and the seizure of property and assets. Having your car or house taken away can be the financial death-blow for an individual already struggling to make ends meet. Luckily, professional debt counselors can help you use bankruptcy to avoid the painful consequences that can arise from unpaid taxes.
What are the conditions in which the tax debt is discharged?
Federal income taxes can only be discharged through Chapter 7 if they meet all of the following criteria:
- The taxes must be income taxes, not payroll taxes or penalties from fraud.
- No fraud or willful evasion was committed
- The tax debt is over three years old
- Tax returns that include the tax debt were filed on time for the last two years
- The “240-day rule”-The tax must not have been assessed within the last 240 days. This rule applies where the tax return did not accurately show all the tax that was owed, and the IRS just finished assessing additional tax amounts after discovering inaccuracies.
- The IRS has not placed a tax lien on your property yet
Chapter 13 offers a similar list of restrictive criteria. Under most Chapter 13 filings, the debtor repays the tax debt incrementally as part of an income-based repayment plan over 3 to 5 years. Other debts including credit card balances and personal loans might be discharged, but the unpaid taxes are usually a priority debt that must be paid.
Debt relief professionals can provide important problem-solving expertise.
Some other possibilities for mounting tax debt include setting up a payment plan with the IRS, First-Time Penalty Tax Abatement, or an Offer in Compromise. An attorney can show you how these or other legal tools can work in tandem with bankruptcy filings to allow you the best possible outcome. An experienced bankruptcy lawyer can help you navigate the nuances and avoid the pitfalls of the legal system. Contact the Law offices of Jeffrey Lohman to learn what options in bankruptcy might offer the best resolution for your tax debts.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.