There is a great deal of stress upon those people considering bankruptcy. People cannot afford to pay their bills. Creditors begin to call, harass and threaten as people try to juggle the issue of how and when to pay their bills. Feeding their family and maintaining a home are also high on the list of priorities. If an IRS debt is also involved, the stress can be overwhelming.
Bankruptcy may be able to help a person with their tax debts. It is not the ideal place to fight tax debts, however, since they are not dischargeable.
If your other debts are discharged, then you can use your disposable income to pay off the IRS. But first and foremost, you should check to see if your tax debt meets the five requirements to be discharged in bankruptcy.
Five requirements are needed if your tax debt to the IRS is to be deemed dischargeable:
First of all, the debt must be from income taxes. Excise taxes, payroll taxes and others will not be discharged.
Second, it must have come due at least three years prior to the filing of a bankruptcy petition. The date a tax comes due is usually April 15 the year after the debt is incurred.
If you owe taxes on income earned in 2009, for instance, the date the tax came due would normally be April 15, 2010. Therefore, a person seeking to discharge this debt could not file for bankruptcy until April 15, 2013 at the earliest.
Thirdly, a debtor must show that they filed the tax return for this particular debt at least 2 years before seeking a discharge in bankruptcy. For the above mentioned example, a tax return for the 2009 income tax debt needs to have been filed on April 15, 2011 at the latest. The bankruptcy code punishes those people who do not file returns timely on tax debts they later seek to discharge.
Fourth, you must not have committed fraud or tried to evade paying on the taxes. Filing tax returns with false social security numbers or other methods of avoiding the tax will make it ineligible for discharge.
The fifth requirement you must meet in order to have your tax debt discharged is that you must pass the 240-day test. This states that if the tax was assessed within 240 days of the petition, then it will not be discharged in bankruptcy. The IRS has documentation you can request that informs you of the date the tax was assessed.
If all five requirements are met, then it is possible to have your IRS debt discharged in bankruptcy. A couple more factors need to be analyzed to determine whether or not to pursue this option.
The first is that Chapter 7 will not get rid of a federal tax lien. If the IRS has recorded a tax lien on your property, then this discussion is moot.
An additional, very difficult part of the process of discharging tax debts is that you have to get a ruling from a bankruptcy judge that says the debt is discharged. This involves suing the IRS in bankruptcy court and winning.
This can be quite costly and will go beyond the low flat-fee your bankruptcy attorney charges for a petition that does not include a battle with the I.R.S. If your tax debt is substantial enough and fits into all of the above requirements, it could be well worth the investment.
If the debt is small or does not meet the requirements outlined above, it may be better to find another way from under the debt. As said above, a Chapter 7 can eliminate debt and free up some disposable cash to afford payments on a tax debt. A Chapter 13 Bankruptcy can also be used, which will give you 3-5 years to pay off the tax if the IRS chooses not to work on payments.
Do not ignore your financial problems. There are many solutions available for people who are drowning in debt. If you are in need of relief and owe the IRS, reach out to an attorney and see what options exist. In the right circumstances, a tremendous amount of relief can be experienced.
If you feel you are drowning in debt, call a Seattle Bankruptcy Lawyer today. It is quite possible that many of your financial problems can be eliminated in a Chapter 7 Bankruptcy.. This article, Tax Debts And Bankruptcy is available for free reprint.