There is a great deal of stress upon those people considering bankruptcy. People cannot afford to pay their bills. Creditors begin to call, harass and threaten as people try to juggle the issue of how and when to pay their bills. Feeding their family and maintaining a home are also high on the list of priorities. If an IRS debt is also involved, the stress can be overwhelming.
Bankruptcy is not the ideal location for dealing with tax debts as most of them are not dischargeable. Even if you owe the IRS, however, a bankruptcy may still help you get out of trouble.
If you file bankruptcy, your credit cards and medical bills can be discharged. This will give you the opportunity to use that extra income to pay off your tax debt. Of course, you should discover whether or not your tax debts meet the requirements of the bankruptcy code for a discharge.
Five requirements are needed if your tax debt to the IRS is to be deemed dischargeable:
They must be income taxes, first of all. They cannot be payroll taxes or excise taxes or any other kind of tax debt.
Secondly, the debt must have come at least three years prior to the bankruptcy. Usually, the date for a tax is April 15 the year after you incurred the debt.
If you owe taxes on income earned in 2009, for instance, the date the tax came due would normally be April 15, 2010. Therefore, a person seeking to discharge this debt could not file for bankruptcy until April 15, 2013 at the earliest.
Third, you must have filed a return on the debt at least 2 years prior to filing bankruptcy. In this example, to meet the third prong, you must have filed your tax return for 2009 prior to April 15, 2011 in order for it to be discharged. People who owe taxes and fail to file the return on them get punished later in trying to discharge these debts in bankruptcy.
A fourth requirement is that the debtor cannot have committed fraud or tried to evade payment on the tax debt. If you file a tax return with a false social security number of find other ways of avoiding the tax, you will be ineligible for a discharge of those taxes in bankruptcy.
The fifth requirement you must meet in order to have your tax debt discharged is that you must pass the 240-day test. This states that if the tax was assessed within 240 days of the petition, then it will not be discharged in bankruptcy. The IRS has documentation you can request that informs you of the date the tax was assessed.
If the five requirements are met, then the tax debt can be discharged in bankruptcy. There are more considerations, however, that can complicate the matter.
The first is that Chapter 7 will not get rid of a federal tax lien. If the IRS has recorded a tax lien on your property, then this discussion is moot.
A second additional factor that needs to be considered is that you need a ruling from a bankruptcy judge in an adversarial proceeding within your bankruptcy petition. You must sue the IRS and win in order for a tax debt to be discharged.
Suing the IRS can be quite costly and will go well beyond the low flat fee your attorney charges for the petition. A battle with the IRS can be costly but if your tax debt is substantial and meets the requirements, it could be well worth the fight.
If the debt is small or does not meet the requirements outlined above, it may be better to find another way from under the debt. As said above, a Chapter 7 can eliminate debt and free up some disposable cash to afford payments on a tax debt. A Chapter 13 Bankruptcy can also be used, which will give you 3-5 years to pay off the tax if the IRS chooses not to work on payments.
Do not ignore these problems. There are plenty of solutions available if you are drowning financially. If you are facing bankruptcy and your debt to the IRS meets these 5 prongs, make certain you reach out to a bankruptcy attorney to analyze the potential for discharge.
Bankruptcy is not the ideal location for dealing with tax debts as most of them are not dischargeable. Even if you owe the IRS, however, a bankruptcy may still help you get out of trouble.
If you file bankruptcy, your credit cards and medical bills can be discharged. This will give you the opportunity to use that extra income to pay off your tax debt. Of course, you should discover whether or not your tax debts meet the requirements of the bankruptcy code for a discharge.
Five requirements are needed if your tax debt to the IRS is to be deemed dischargeable:
They must be income taxes, first of all. They cannot be payroll taxes or excise taxes or any other kind of tax debt.
Secondly, the debt must have come at least three years prior to the bankruptcy. Usually, the date for a tax is April 15 the year after you incurred the debt.
If you owe taxes on income earned in 2009, for instance, the date the tax came due would normally be April 15, 2010. Therefore, a person seeking to discharge this debt could not file for bankruptcy until April 15, 2013 at the earliest.
Third, you must have filed a return on the debt at least 2 years prior to filing bankruptcy. In this example, to meet the third prong, you must have filed your tax return for 2009 prior to April 15, 2011 in order for it to be discharged. People who owe taxes and fail to file the return on them get punished later in trying to discharge these debts in bankruptcy.
A fourth requirement is that the debtor cannot have committed fraud or tried to evade payment on the tax debt. If you file a tax return with a false social security number of find other ways of avoiding the tax, you will be ineligible for a discharge of those taxes in bankruptcy.
The fifth requirement you must meet in order to have your tax debt discharged is that you must pass the 240-day test. This states that if the tax was assessed within 240 days of the petition, then it will not be discharged in bankruptcy. The IRS has documentation you can request that informs you of the date the tax was assessed.
If the five requirements are met, then the tax debt can be discharged in bankruptcy. There are more considerations, however, that can complicate the matter.
The first is that Chapter 7 will not get rid of a federal tax lien. If the IRS has recorded a tax lien on your property, then this discussion is moot.
A second additional factor that needs to be considered is that you need a ruling from a bankruptcy judge in an adversarial proceeding within your bankruptcy petition. You must sue the IRS and win in order for a tax debt to be discharged.
Suing the IRS can be quite costly and will go well beyond the low flat fee your attorney charges for the petition. A battle with the IRS can be costly but if your tax debt is substantial and meets the requirements, it could be well worth the fight.
If the debt is small or does not meet the requirements outlined above, it may be better to find another way from under the debt. As said above, a Chapter 7 can eliminate debt and free up some disposable cash to afford payments on a tax debt. A Chapter 13 Bankruptcy can also be used, which will give you 3-5 years to pay off the tax if the IRS chooses not to work on payments.
Do not ignore these problems. There are plenty of solutions available if you are drowning financially. If you are facing bankruptcy and your debt to the IRS meets these 5 prongs, make certain you reach out to a bankruptcy attorney to analyze the potential for discharge.
About the Author:
If you feel you are drowning in debt, call a Seattle Bankruptcy Lawyer today. It is quite possible that many of your stressful problems can be eliminated in a Chapter 7 Bankruptcy.
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