Bankruptcy & Tax Debt


Bankruptcy and Tax Debt

Not all tax debts are capable of being discharged in bankruptcy. The bankruptcy petitioner (also known as “debtors”) must have tax debts that meet five criteria for discharge. If the following criteria are met, you can eliminate tax debt.
Tax debts are associated with a particular tax return and tax year. The bankruptcy law lays out specific criteria for how old a tax debt should be.

Five Rules to Discharge Tax Debts:

If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.

  1. The due date for filing a tax return is at least three years ago.
  2.  The tax return was filed at least two years ago.
  3. The tax assessment is at least 240 days old.
  4. The tax return was not fraudulent.
  5. The taxpayer is not guilty of tax evasion.

If you do not qualify for Chapter 7 Bankruptcy and/or your tax liability is very recent (or if you do not meet the above criteria) you can get relief with Chapter 13 Bankruptcy by proposing a payment plan that the IRS and State Franchise Board will be satisfied with. This can help alleviate much of the stress associated with owing taxes. Bankruptcy will prevent wage garnishments or other types of levies/attachments of your assets. Above all, if you owe taxes you MUST be proactive and deal with it.

Call Monterey Peninsula Bankruptcy for a free initial consultation to discuss your tax debt situation to see if bankruptcy will help. (831) 224-3199.

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