What tax debts are dischargeable in bankruptcy?

When the economy went into a major recession in 2008, many people found themselves struggling financially. Unemployment and underemployment spiked, causing millions to fall behind on their bills. Some could not even afford to pay their taxes. Even though the economy is slowly beginning to recover in 2013, the damage that the recession did to people's finances lingers, causing people to consider their options for debt relief. Some people considering bankruptcy are concerned that not all of their debts, particularly tax debts, can be eliminated in bankruptcy. Those thinking of filing bankruptcy should be aware of how bankruptcy laws treat tax debts.

Criteria for discharging tax debt in bankruptcy

In order for a tax debt to be eligible for discharge in Chapter 7 and Chapter 13 bankruptcy, the debt must stem from a tax return that was due three years prior to the filing of the bankruptcy petition, including any extensions the taxpayer requested for filing the return. The taxpayer also needs to have actually filed a tax return for the debt at least two years prior to the filing of the bankruptcy petition. The IRS needs to have assessed the tax debt at least 240 days prior to the time the taxpayer filed the bankruptcy petition. In many cases the assessment comes from the amount that a taxpayer reports owing on a tax return. However, delays is assessing tax debt can come about when the assessment is the result of an audit or IRS proposed assessment that became final, so people need to check the dates of their debt assessments.

Additionally, the taxpayer must not have filed a fraudulent tax return or intentionally attempted to evade tax laws in order for the tax debt to be eligible for bankruptcy discharge.

Some tax debt cannot be discharged

If a taxpayer's tax debts do not meet the above criteria, bankruptcy will not discharge the debt. Additionally, people cannot discharge tax debts for years they failed to file returns. People may not be aware that the IRS assesses tax debts on people even when they do not file the returns they are supposed to. People should make sure that they have filed tax returns each year before considering bankruptcy.

Talk with an attorney

Bankruptcy law is very complex. Filing bankruptcy is a powerful debt relief tool, but people should not attempt to do it without the assistance of an attorney. A simple mistake can result in the dismissal of a bankruptcy petition and possibly ruin a person's opportunity to file altogether. If you are considering bankruptcy as a means of dealing with your financial difficulties, speak with a bankruptcy lawyer who can assess whether that is the appropriate form of debt relief for you and help you move forward on the path to financial stability.