Taxpayers are often under the impression they cannot discharge tax debt . While bankruptcy is a powerful legal tool that may help you gain control of your finances and eliminate qualifying debt, it can help discharge tax debt in certain circumstances.
There are different types of tax debt consumers deal with, yet in bankruptcy income tax debt is the most common that is dischargeable after meeting specific requirements. If you intend to include income tax with your bankruptcy filing you are required to have all income tax returns filed and current. This means tax returns in relation to the debt you want to discharge should be filed with the Internal Revenue Service (IRS) prior to your bankruptcy filing.
Debt associated with filed returns after 3 years have a better chance of being discharged if the IRS is unsuccessful in collecting against them. If your tax debt doesn’t qualify to be discharged, you may still benefit from filing Chapter 13 bankruptcy . This option may help you come up with an affordable repayment plan that may last from 3 to 5 years. You can negotiate an amount to pay and once the court approves the plan, the IRS will accept payments under the new payment schedule.
Bankruptcy may help reduce or eliminate penalties and interests associated with outstanding tax debt. The filing process may also stop IRS collection attempts including property seizure and garnishments. In understanding if your tax debt is eligible for bankruptcy relief, factors such as the type of tax, when it was filed, the age of the tax and when it was assessed should be reviewed with an experienced bankruptcy attorney.