Usually after bankruptcy a debtor is still liable for tax debt. Nevertheless, bankruptcy regulation allows the discharge of tax debt only under certain circumstances that is most likely under Chapter 7 of the Bankruptcy Code rather than Chapter 13. This is because Chapter 13 implies getting a repayment plan that includes tax debt, along with other debt. Chapter 7 bankruptcy, on the other hand, allows a debtor to discharge certain type of financial debt, such as credit card debt as well as medical bills, and in some circumstances, federal tax debt.
Do You Qualify For Discharge?
The decision of whether a debtor can discharge tax debts will depend on the type of tax and bankruptcy, and how old the tax debt is, if you filed a return. It is important to know that pay-roll taxes and also penalties for fraud are not qualified for discharge. However, fines on tax obligations that are dischargeable are additionally eligible for discharge. After that, a borrower is no longer in charge of paying the tax and the IRS will not garnish wages or bank accounts.
Federal income taxes are dischargeable under Chapter 7 only if the debtor fulfills every of the condition listed below:
- You filed a legit tax return: The debtor submitted a tax return for the relevant years at least 2 years before filing for bankruptcy.
- The tax responsibility lasts for a minimum of three years: The tax debt is from an income tax return that was initially due a minimum of three years before filing for bankruptcy.
- You are eligible under the 240-day rule: The Internal Revenue Service assessed the tax debt at least 240 days prior to the debtor filed for bankruptcy. If the IRS stopped collection activities during arrangement, the suitable date might be expanded.
- You did not commit willful tax evasion: Probable evasive actions involve changing your Social Security number, your name, or the spelling of your name; multiple failures to pay taxes; filing a blank or incomplete income tax return; and hiding money you took from a bank account.
- You did not commit tax fraud: The return contains no information that was intended to defraud the IRS.
Which Taxes Are Not Qualified for Discharge?
The following kinds of tax financial debt are not dischargeable in Chapter 7 bankruptcy:
- Trust fund taxes or withholding taxes deducted from a worker’s paycheck by the employer
- Tax penalties from tax debt that is ineligible to be discharged
- Tax debts from unfiled income tax return
Bankruptcy and Taxes: Federal Tax Liens
As described above, many tax debts are dischargeable under Chapter 7, but if the IRS placed a federal tax lien on your property and assets prior to the bankruptcy case, it will stay after discharge. Consequently, it is important to clear the title by paying off the lien before selling the property.
Do You Have Any Questions Regarding Bankruptcy?
If a significant part of your debt load consists of tax and you think it can be easily eliminated you need to think about it again, as tax obligation laws are complex. Get the appropriate info currently so you are educated concerning the bankruptcy process and what to expect. You could start with getting legal consultation from a professional bankruptcy attorney Jack Setters. Contact Jack Setters today to schedule a consultation, and “fight back with Jack!”