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Bankruptcy and Taxes

If you’ve been falling behind on tax payments or claiming more exemptions in order to cover your other debts, the time to talk to an attorney is now – because you don’t want to put yourself on bad terms with the IRS.

In a Chapter 7 bankruptcy, most people can discharge income tax debts that are more than three years old from the date they should have been filed – provided tax returns were actually filed for those taxes more than two years ago and there has been no recent assessment of additional taxes owed. Chapter 7 won’t allow you to discharge taxes that are less than three years old, business taxes, sales taxes or payroll taxes.

If Chapter 7 isn’t an option, Chapter 13 may be the next best choice. In that case, your tax debts can be included in your repayment plan.

Benefits of bankruptcy with regard to taxes

Should you file bankruptcy, the IRS has to cease any collection efforts pending against you. You may also be able to create a payment plan that works within your budget.

It’s important to be realistic: Most taxes can’t be eliminated in bankruptcy – but some can. Moreover, you may be able to enter into an installment agreement with the IRS, make a deal with the IRS to delay collection efforts, or enter into an offer in compromise. That’s an agreement between you and the IRS whereby you pay a reduced amount.

The rules surrounding what is and isn’t dischargeable are strict and complex, and there are plenty of conditions attached to agreements between individuals and the IRS. That’s why it’s important to talk to an experienced attorney about your options. If you have questions about bankruptcy and taxes, contact us – we have answers.

Tax Debt
Many people believe you can’t discharge tax debts in bankruptcy. Actually, some tax debts can be forgiven – under certain conditions, subject to a number of rules.

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