People in financial trouble often file for bankruptcy. Bankruptcy is a legal protection that halts collection efforts on existing debts and can allow debtors to wipe out debts completely or reorganize their finances to pay off those debts, perhaps at a reduced amount. But do these bankruptcy protections apply to tax debts? The answer is, it depends on your circumstances.
How Does Bankruptcy Help Me with My Tax Debt?
Once you file for bankruptcy, the law provides for a stay that keeps your creditors from continuing with collection actions. Because your filing lists all of your creditors, those creditors receive a notice from the bankruptcy court that a stay on collection efforts is in place. This applies to the IRS as well as any other creditors. Once the stay is in place, the IRS may not begin or continue collection actions against you for back taxes.
The stay does not mean that all tax debts will be discharged, however. It depends upon which bankruptcy chapter you file under, as well as other particular circumstances. The IRS advises that some taxes are dischargeable debts, but others are not, depending upon “the unique facts and circumstances of each case.”
In general, older tax debts may be discharged in bankruptcy under certain circumstances, including:
- Where a return was due at least three years ago;
- You actually filed the return over two years ago;
- The IRS assessed the tax at least 240 days ago;
- You did not commit any fraud or tax evasion.
Other exceptions exist that make a tax debt dischargeable, but most tax debts are considered to be priority debts that cannot be discharged in bankruptcy.
Should I Consult an Attorney About Tax Debts in Bankruptcy?
Almost everyone who files for bankruptcy does so through an attorney. However, if you have tax debts involved, you should consult an attorney who is familiar with the possibility to discharge tax debts in bankruptcy. There are other tax requirements when you file for bankruptcy, as well. Should you file under Chapter 13, the most common filing for individuals, those requirements include:
- You must file all required tax returns for tax periods ending within four years of your bankruptcy filing.
- During your bankruptcy, you must continue to file, or get an extension of time to file, all required returns.
- During your bankruptcy case, you should pay all current taxes as they come due.
Failure to file returns or to pay current taxes during your bankruptcy may result in your case being dismissed. These and other concerns should lead you to consult an attorney with experience with taxes in bankruptcy.
If You Owe the IRS and are Filing for Bankruptcy in the Atlanta or Marietta Areas, You Should Contact Tax Attorney Jeff Cohen, Attorney at Law
If you owe back taxes to the IRS and are filing for bankruptcy in the Atlanta or Marietta areas, it is possible that you might be able to discharge some of those debts. To find out if this is the case, you should seek legal advice. To help you deal with such a situation in bankruptcy in the Atlanta or Marietta areas, contact tax attorney Jeff Cohen, Attorney at Law. You can call me at (404) 814-0000 or use my online contact form.