Can bankruptcy help with tax debts?

As an Asheville bankruptcy lawyer, I speak with people about their tax debts on a daily basis.  Although many recent taxes are ‘priority debts,’ which are not dischargeable in a Chapter 7 bankruptcy, the bankruptcy code does provide relief.

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Good advice is essential with tax debts

First, many taxes are labeled ‘non-priority,’ and can be discharged in a Chapter 7 case just like a credit card debt or medical bill.  To be a non-priority debt, the tax must be (1) due more than 3 years prior to the bankruptcy petition filing date, (2) assessed more than 240 days prior to the petition filing date, and (3) for which a return was timely filed without fraud.  If the back taxes due follow those three rules, you can likely get them discharged if you qualify for Chapter 7 relief.

If your tax debts are ‘priority debts,’ meaning they do not follow the three rules listed above, the bankruptcy code allows you to pay them in full without interest in a Chapter 13 bankruptcy case.  If the debts are too large to pay in Chapter 13 based on your income, non-bankruptcy relief in the form of an ‘Offer In Compromise’ with the IRS can help.  An offer in compromise is a settlement arrangement with the Internal Revenue Service when it appears as though the tax debt may not be collectible.  A bankruptcy case can be used in conjunction with an Offer In Compromise where appropriate to eliminate other types of debt in order to make a client’s monthly budget work.

Got all that?  The nuances of tax liabilities are complicated, and it is imperative to get good advice before filing a bankruptcy case or taking alternative action.  The timing of your filing can dictate whether the debt is fully dischargeable or has to be paid in full.  If you live in Western North Carolina, I would be pleased to speak with you about the specifics of your tax debt during a free, initial bankruptcy consultation.

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