Bankruptcy is a complex area of law and getting rid of income tax debt in bankruptcy is complicated. To understand your specific situation it will be important for you to meet with an experienced bankruptcy attorney to discuss your potential case.
Dischargeable Income Tax Debts
Income tax debts that meet the following three criteria may be discharged (erased) through bankruptcy:
- The tax debt must be at least 3-years old:
- The tax return associated with the tax debt must have been due, including any extensions, more than 3-years before the date the bankruptcy case is filed.
- The tax return related to the debt must have been on file for at least 2-years:
- If the tax return related to the debt was not filed on time, that tax return must have been filed more than 2-years before the date the bankruptcy case is filed.
- The tax debt must be assessed by the IRS at least 240 days prior to filing bankruptcy:
- A tax debt is assessed on the date the tax liability is officially assessed at the IRS Service Center and the applicable form is signed by an IRS official.
These rules apply to federal and state income tax debts. There are other rules that you can discuss with your bankruptcy attorney, but the foregoing are the basics.
If a person files for Chapter 7 bankruptcy, qualifying older tax debts will be discharged. If a person files Chapter 13 bankruptcy, the qualifying older tax debts will be non-priority claims and paid to the extent that general unsecured non-priority claims are being paid by the Chapter 13 plan.
However, often when a person has older tax debts they also have recent, nondischargeable tax debts. Chapter 13 can help manage income tax payments for newer tax debts that are nondischargeable.
Income Tax Debts―How Chapter 13 Can Help
Filing for Chapter 13 bankruptcy allows you to create a repayment plan to pay back your debts over three to five years.
Newer and nondischargeable tax debts are priority claims, so you would pay off the debt in your Chapter 13 plan. This allows you to pay back your tax debts, and other debts, at a pace that you can afford. Both the IRS and the Georgia Department of Revenue must comply with your repayment plan approved by the bankruptcy court. One of the greatest benefits is that during your Chapter 13 case you are protected from aggressive tax collection action.
Chapter 13 bankruptcy also creates an opportunity to pay off a recorded tax lien that is attached to your property.
Working with a Bankruptcy Attorney
Here at the Law Office of Barbara B. Braziel, we help people get out of debt. We are the premier bankruptcy law firm in Savannah, GA and we practice exclusively in bankruptcy law. Our experienced attorneys are committed to ensuring you understand the protections and benefits of bankruptcy and how filing will affect you and your family. We invite you to get to know us here and read about the clients we’ve helped here.
Find out more about Bankruptcy in our guide: All About Bankruptcy
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.