Bankruptcy Help: How to Discharge (Some) Tax Debts after Bankruptcy

You might have seen or heard those advertisements that claim to offer bankruptcy help by discharging taxes. It sounds nice, but is it as simple as that? The truth is that some tax debts are dischargeable after you file for Chapter 7 or Chapter 13 bankruptcy, but first, you have to meet some conditions to be eligible.

Chapter 7 or Chapter 13?

First, let’s talk about which type of bankruptcy is best for discharging tax debts.

In Chapter 7 bankruptcy, the courts take control of your assets, liquidating them as it sees fit to pay down your debts as much as possible. If liquidating your assets does not cover all of your debts, any remaining debts are discharged. This can include some of your tax debts, but because tax debts are usually considered “priority” debts, the money that you raise from liquidating your assets goes toward them before other “non-priority” debts. Still, if your assets don’t raise enough to pay for your priority tax debts, they are still dischargeable.

Chapter 13 bankruptcy is a bit different. Under this form of bankruptcy help, you cannot discharge your priority tax debts, which is why many people opt for Chapter 7 if they want to eliminated their tax burden. Non-priority tax debts are, however, eligible for discharge under Chapter 13. To be considered non-priority, your tax debt must meet a few criteria.

What Are the Conditions?

Whether your Chapter 7 or Chapter 13 tax debts qualify as non-priority debts depends on a few different things, such as the age of the debt, the type of tax, when the debt was assessed by the IRS, and whether you filed a return. If you have met these conditions, your tax debt may be discharged under Chapter 7 bankruptcy, and under Chapter 13 bankruptcy for non-priority taxes:

  • You did not commit fraud on your tax return – If you attempted to avoid paying taxes by using false information on your return, bankruptcy won’t help you discharge your tax debt.
  • Your taxes are at least three years old – Your tax debt can only be eliminated if you filed the return three years ago or longer.
  • The tax debt you wish to discharge must be income tax – Other taxes, such as payroll taxes, won’t go away after bankruptcy.
  • Your tax return is at least – You must file for bankruptcy at least two years after you have filed the return for the taxes you wish to discharge.
  • Your tax assessment is 240 days old.

To determine whether your tax debt is dischargeable under bankruptcy, apply these criteria to your situation.

Get the Bankruptcy Help You Need

As with any other bankruptcy matters, it is best to consult with a bankruptcy attorney before. Get the bankruptcy help you need in the Miami area. Contact AM Law today to set up a consultation so that we can work together to see whether bankruptcy can give you the tax relief that you need.