Typically, tax debt is considered to be “secured debt” and takes precedence even over student loans. What this means is that most people will still owe back taxes, even after filing for bankruptcy. However, there are some unique circumstances in which bankruptcy will allow tax debt to be discharged like other debts in a Chapter 7. Here’s what you need to know.
You Can Dissolve Your Tax Debt in a Bankruptcy If:
- The taxes you owe are three years old or more. You can only have tax debt discharged that is three years old or over. If you owe tax debt from two years ago, you could wait another year before you file for bankruptcy. This way, that debt will then be eligible for discharge.
- You owe only income taxes. Income tax debt is the only type of tax debt considered dischargeable under certain circumstances. See below for a list of circumstances. If you owe payroll tax or are being penalized for fraud, those debts will never be discharged. They must be paid by you, regardless of whether or not you file bankruptcy.
- You filed a tax return for those taxes. The IRS must have a tax return on file for the year(s) of debt you are attempting to discharge. If you did not file for that year, you will not be eligible to have the debt discharged until three years after you file. So, if you did not pay taxes in 2010, but did not file that year until 2016, the debt will not be eligible for discharge until 2019 or after.
- You meet the 240-day rule. The “240-day rule” simply states that the IRS must have evaluated your tax debts 240 days prior to your filing for bankruptcy, or the debt must not have been assessed at all. If the IRS has begun evaluating your debt, but you are still within the 240 days, that debt may not be included on the bankruptcy petition to be discharged.
Contact the Law Firm of D.C. Higginbotham Today
If you are struggling underneath a mountain of tax debt and it seems as though you’ll never get it paid off, rest assured that there’s hope on the horizon. If you meet the above criteria, you may be able to have your tax debt discharged.
To find out more about how to get out from under crushing tax debt, contact our office by calling (904) 354-6604 for a consultation.