Can I Eliminate My Tax Debts in Bankruptcy?

You may have heard that you can get rid of tax debts in bankruptcy, but it is not as easy as it seems. You will still owe most tax debts after a Chapter 7 bankruptcy, or you will have to repay them in a Chapter 13 bankruptcy repayment plan. Talk to your Washington DC bankruptcy attorney for complete information about tax debt discharge in bankruptcy.

When You Can Discharge Your Tax Debt

A Chapter 7 will give you the best chance of wiping out your tax debt, but only if the tax debts meet certain conditions. A Chapter 7 filing will discharge your federal tax debts if all of the following are true:

  • The taxes are income taxes. No one can eliminate payroll taxes or fraud penalties in a bankruptcy.
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return or willfully attempted to evade paying taxes, your resulting tax debt will survive the bankruptcy.
  • The tax debt is at least three years old. Your tax return must have been due at least two years before the bankruptcy filing
  • You filed a tax return before the due date. You cannot discharge taxes assessed from a late-filed return.
  • You pass the “240 day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet (this time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing)

Chapter 7 bankruptcy can discharge a federal tax debt if all of the above conditions are present, but a bankruptcy cannot wipe out an existing federal tax lien. You may no longer have to pay the tax debt after a Chapter 7, but a lien will stay on your property if recorded prior to your filing. You will have to pay off the tax lien in order to sell the property.

Contact a Washington DC bankruptcy lawyer to find out more about bankruptcy and tax debts. You may hear radio advertisements from attorneys offering to wipe out your federal tax debts. A qualified Washington DC bankruptcy attorney can assess your debt and let you know if a Chapter 7 bankruptcy will benefit you.

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