While you may have heard that it’s not possible to get rid of tax debt with bankruptcy, this isn’t entirely true. There is some truth in this widely held belief in that you can’t discharge all types of tax debt, but you can use bankruptcy to get rid of certain tax debts that may be holding you back.
When your unpaid tax obligation to the IRS seems insurmountable, it’s important to evaluate all possible options for tax relief. In some cases, bankruptcy may provide the assistance you need to get rid of tax debt or make paying it off a more manageable goal.
Requirements for Discharging Tax Debt
Achieving a discharge of tax debt through bankruptcy requires the bankruptcy filer – and their debt – to meet certain conditions. Unless these conditions are met, the bankruptcy court will probably treat the tax debt as a “nondischargeable priority debt,” which means repayment of the debt is required but prioritized over other creditors’ debt.
The following are required conditions for receiving a tax debt discharge:
- The tax debt is from income taxes (state or federal) but not payroll taxes
- The tax debt is at least three years old before the bankruptcy filing date
- The IRS assessed the debt at least 240 days before the bankruptcy filing date or has yet to do so
- The bankruptcy filer has filed a valid tax return for the debt at least two years before filing for bankruptcy
- The bankruptcy filer did not attempt to evade taxation or file a fraudulent return
It may be difficult to discern if you meet the requirements for discharging tax debt on your own. In any case, your best bet is to consult with an experienced bankruptcy attorney to learn more about your eligibility for tax debt relief through bankruptcy.
What If I Don’t Qualify for Bankruptcy?
Keep in mind that the criteria above are in addition to the eligibility requirements for bankruptcy itself. You may not qualify for bankruptcy if you had a recent discharge or you don’t satisfy the requirements for Chapter 7 or Chapter 13 bankruptcy.
This doesn’t mean you can’t get help! An attorney such as one of ours at Buchalter & Pelphrey Attorneys At Law can help you deal with tax debt by other means, such as pursuing an installment agreement or offer in compromise with the IRS.
Contact Us for Legal Assistance
Our attorneys at Buchalter & Pelphrey Attorneys At Law can help you deals with all kinds of debt, including tax debt. Bankruptcy may be able to help, but there are other ways to manage tax debt and seek the relief you need from it.
Learn more about your legal options by contacting us online and requesting an initial consultation.