A Guide to Understanding Tax Debt & Bankruptcy
Financial pressure quickly mounts for individuals who owe substantial amounts of taxes and back taxes. People often ask, does filing bankruptcy for tax debt provide you with real relief? Does bankruptcy release back taxes? Is filing chapter 7 or chapter 13 bankruptcy the better approach? In this guide, these important questions will be addressed to help provide you with a clearer understanding of all matters related to tax debt and bankruptcy.
One major misconception is that filing bankruptcy on taxes does not work, and that taxes are never discharged. That’s truly not the case. When a specific set of criteria are met, then filing bankruptcy on tax debt truly does work, meaning that you’re able to successfully release those taxes.
However, in most situations, only income tax can be discharged, not other IRS tax debts such as payroll taxes, or penalties. Of course, there are always specific conditions, circumstances and so forth which must be met, and in many situations, there are exceptions to the rules.
Conditions that must be met include a range of issues, but importantly that there was no fraud or tax evasion involved, and that a tax return was filed. The back taxes owed must also be at the minimum three years old. This makes the timing of filing bankruptcy on taxes tricky for individuals, and is one of the major reasons why discharging tax debt does not work for many people.
When the appropriate conditions are met, taxes can be discharged. already they cannot be discharged based on the circumstances, filing bankruptcy may nevertheless provide substantial relief The good news is that, yes, bankruptcy nevertheless may help provide you with serious financial relief depending on your circumstances.
for example, if you file chapter 13 bankruptcy, taxes that are not eligible for release may be repaid interest and penalty fee over as long as 60 months. In Chapter 13, a single monthly repayment plan is produced, giving you something more manageable, and allowing you time with a realistic approach to pay off debts and get back on track. Otherwise, by filing chapter 7 bankruptcy, you may at the minimum be able to unprotected to freedom from other debts you may have, allowing you to more easily pay back your taxes.
Of course, it’s always important to consult with an experienced bankruptcy attorney before deciding to file, or to seek out other possible alternatives and viable solutions. As mentioned, there are many different conditions and circumstances which may apply, and you’ll want to carefully analyze your complete financial picture before moving ahead with tax debt and filing bankruptcy.