Bankruptcy can be a powerful tool to help people who find themselves in over their heads with unmanageable debts. The goal of bankruptcy is to reorganize, consolidate or even forgive your insurmountable debts. Filing Chapter 7 eliminates all dischargeable debt that you owe to your bank, credit card companies or other creditors. But what about the money you owe to the IRS?
Income taxes are dischargeable, but only in very specific circumstances. A Washington DC bankruptcy attorney can assess your overall liability and determine whether or not you will be able to discharge your tax debts. It is important to note that not every type of tax is eligible. Payroll taxes such as FICA are never dischargeable. Neither are estate, gift, sales or fuel taxes. The only type of tax that you can discharge is income tax.
Even with income tax debt, the law imposes a burden on other creditors by giving the government a priority claim for a three-year collection period, which means the IRS will get available monies first. Taxes are nondischargeable during the priority collection period. This means that in order to discharge an income tax debt underChapter 7, you must meet the following criteria:
- Your income taxes are more than 3 years old at the time you file for bankruptcy
- Your Tax Assessment is from more than 240 days before the bankruptcy was filed
- You did not engage in fraud or tax evasion regarding the income taxes you are seeking to have discharged
- The IRS has not filed a tax lien against you
- You filed your taxes on time
If you meet all of these requirements, you may be able to discharge a significant debt and get one step closer to financial recovery. Even if you are not able to discharge your income tax debt, consulting a Maryland bankruptcy lawyer or a Washington DC bankruptcy lawyer can still help you protect your assets by considering repayment through a Chapter 13 bankruptcy.