Will filing bankruptcy help me with my tax problems?
With 2016 having just begun, it is once again the time of the year to give Uncle Sam his due. Although tax season is nobody’s favorite time of the year, it is especially hard on those owing back income taxes. If you are in this situation, you may be in a rough financial situation and wonder whether filing bankruptcy would provide any relief. Unfortunately, the answer to this question is somewhat complex, as it depends on many factors.
Is tax debt dischargeable?
Income tax debt must meet certain standards before it may be discharged in bankruptcy. These standards are:
• The income taxes must have been for a return that was due at least three years before you filed bankruptcy. If the IRS granted any extensions, three years must have passed since the extended due date.
• The tax return must have been filed at least two years before filing bankruptcy.
• The tax debt must have been assessed at least 240 days before filing bankruptcy. Assessments generally include an audit determination or a self-reported balance due.
• The return must be free of any attempt to defeat or evade taxes.
As you can see, each return is examined separately to see if it qualifies for the bankruptcy discharge. All income tax returns meeting these standards may be discharged, forever relieving you of any obligation to repay it.
Filing bankruptcy may still be helpful
Even if your tax debt does not qualify for the discharge, bankruptcy may be able to help you get out of your tough financial situation. Chapter 7 bankruptcy is especially helpful if your tax debt is small compared with your other debts. Chapter 7 can quickly discharge most other debts, such as credit cards and medical bills, giving you more financial resources to pay off your tax debt.
If your tax debt load is larger, Chapter 13 bankruptcy may be a better fit for you. In this type of bankruptcy, your tax debt becomes part of a repayment plan. Under the plan, you have three to five years to pay off your tax debt in monthly installments. By spreading out your payments over this long period, Chapter 13 can make paying off your taxes manageable. While you are paying off your taxes, Chapter 13 prevents the IRS from garnishing your wages or employing other collection attempts against you.
To find out whether bankruptcy is a viable solution to your tax problems, speak with an experienced bankruptcy attorney. An attorney can listen to your situation and recommend the best way to proceed.