People who are struggling with overwhelming credit card debt often are also struggling to pay back taxes, too. If you’re struggling with overwhelming debt, it may be time to explore if bankruptcy is the right solution to your debt problems.
Filing for bankruptcy offers a number of benefits, like erasing debts and stopping collection action, including wage garnishment. Bankruptcy can even erase certain older tax debts, though bankruptcy cannot erase newer tax obligations. Payroll taxes and penalties for fraud cannot be erased by bankruptcy, either.
New Tax Debts & Bankruptcy
Income tax debts that are new or newly assessed by the IRS are nondischargeable in bankruptcy. New tax debts that are less than 3 years old, or that have been assessed by the IRS in the past 240 days, cannot be erased through bankruptcy.
If you successfully file for bankruptcy, your credit card debt, medical debt, and other dischargeable debt will be erased, but you will still be obligated to pay back your recent tax debts.
Tax Debt Collection
The IRS has the power to take aggressive collection action against you for unpaid back taxes. When you file for bankruptcy, collection activity by most of your creditors must stop―including collection by the IRS. Even if you cannot erase your newer tax debts through bankruptcy, you can get a reprieve from the collection while you handle your other debts in bankruptcy.
Chapter 13 Plan & Tax Debts
Filing for Chapter 13 bankruptcy allows you to create a repayment plan to pay back your debts over three to five years. Nondischargeable tax debts would be paid off in your Chapter 13 plan, which allows you to manage your tax debt payments, and other debts, in a way that works for you.
Older Tax Debts & Bankruptcy
Certain older income tax debts can be erased by bankruptcy. For an income tax debt to be dischargeable, it must meet three criteria:
- The tax debt must be at least 3 years old.
- The tax return related to the debt must have been on file for at least 2 years.
- The tax debt must be assessed by the IRS at least 240 days prior to filing bankruptcy.
Any interest and penalties associated with a dischargeable income tax debt will be erased as well. These rules apply to federal and state income tax debts.
Savanna Bankruptcy Attorneys
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.