There are a few exceptions for certain types of debt that are protected by specific statutory provisions such as most student loans, child support and most tax debts that can not be discharged in a Chapter 7 Bankruptcy.
I am going to hone in on tax debts with this particular blog and for the most part very recent tax debt is generally non dischargeable in a Chapter 7.
But, if the tax debts meet certain criteria then you may be able to in a Chapter 7.
The criteria for discharging tax debts must all be met and are as follows:
- The tax debts must be income tax debts and not payroll taxes or penalties for fraudulent filings.
- You must have filed a tax return for the tax years you are wishing to discharge, and they must have been filed at least two (2) years prior to the filing your Chapter 7 Bankruptcy. This means that you have to file your tax return at least two (2) years prior to your Bankruptcy in order to receive a discharge of the debts.
- You cannot have committed fraud or attempted to willfully evade paying your taxes. This means filing a fraudulent return, having a false Social Security number, or otherwise committing tax fraud of any kind.
- The tax debts must have been due at least three (3) years prior to the filing of your Bankruptcy case. So, your tax debts for the 2010 tax year, which would have been due by April 18, 2011, may can be discharged unless you filed for an extension or the due date was extended for some other reason. The extension due date was October 17, 2011. For example, if you were to file your Chapter 7 Bankruptcy on December 16, 2014, then you can discharge tax debts that were filed timely for the years 2010 or older.
- Your tax debt must have been assessed by the IRS over 240 days prior to filing your Chapter 7 Bankruptcy or not have been assessed when the Bankruptcy is filed. This is known as the 240 day rule.
This blog does not even cover the additional relief that can be obtained if you were to file a Chapter 13 Bankruptcy where you can a discharge of all taxes if paid in full over the life of your Bankruptcy Plan.
If you are thoroughly confused right now, that is perfectly OK, because taxation is a very complex area of the law. If you owe any tax debt of any kind and are wondering how to deal with it, please call one of our Bond & Botes affiliated offices. We offer free initial consultations so please feel free to call one of our conveniently located offices to set up a private consultation with one of our experienced attorneys. We will analyze your situation and help you to make the best decisions possible to help you eliminate your tax debt.
Grant McNutt is a Managing Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Science from the University of Alabama, and a Juris Doctorate from the Birmingham School of Law. He has been practicing Consumer Bankruptcy Law since 1999.Read his full bio here.