Tax Debt Bankruptcy & You
Tax debt bankruptcy is covered by Chapter 7 or Chapter 13 of the Bankruptcy Code. Just like consumer debt, you might have IRS debt discharged by including it in a bankruptcy. But there are several restrictions or exceptions that you need to consider. First, let's examine some basic rules and requirements to get an idea of your chances of a successful discharge by tax debt bankruptcy. Second, let's consider an alternative to bankruptcy: an Offer in Compromise or OIC. The more you know, the better you will be prepared to make the choice that's right for you.
Rules for Tax Debt Bankruptcy
Taxes Must Be Income Taxes:
Most business taxes like payroll taxes would not qualify for relief. Taxes related to penalties also would not qualify. These types of tax exceptions can not be eliminated in bankruptcy.
The 240 Day Rule:
This rule actually covers two time spans. Tax debt not yet assessed by the IRS may qualify. Or tax debt assessed by the IRS at least 240 days before tax debt bankruptcy petition may qualify. The 240 day limit may be extended under certain exceptions such as IRS suspension of collection activity due to a previous bankruptcy filing.
The tax return cannot be fraudulent in nature. Any use of fraudulent information, like someone else's EIN or SSN, can disqualify your bankruptcy.
No Tax Evasion:
Any tax debt involving intentional acts of tax evasion can not be discharged by bankruptcy.
Return Due At Least Three Years Ago:
Tax debt bankruptcy relief can not be sought on taxes until you have made efforts to pay for three years. The taxes in question must originate from a return due at least three years prior to filing for bankruptcy.
Return Filed At Least Two Years Ago:
The taxes must relate to a tax return filed at least two years prior to filing bankruptcy.
Proof of Regular Filing:
The bankruptcy petitioner must show the last four years tax returns were filed with the IRS. All four tax returns must be filed before the first creditors' meeting. Petitioners must provide a copy of their most recent tax return to any creditor.
Federal Tax Lien Exception:
Personal obligation to pay a tax debt might be discharged under Chapter 7 bankruptcy. If this is successful, it will protect you from many direct seizures by the IRS. Bank account levy and wage garnishment would be deflected. But there is an IRS loophole when it comes to federal tax liens recorded against your property before you filed tax debt bankruptcy. Liens on the property would survive the discharge of tax debt. In effect, you would only be relieved of tax debts that were unsecured. You would still have to pay off any tax lien in order to sell that property.
Avoiding Tax Debt Bankruptcy with an OIC
An OIC, or Offer in Compromise, may allow you to get your tax debt settled with the IRS for a single lesser payment. Was tax debt a large part of the reason you were considering bankruptcy in the first place? An OIC may save you from that hard decision. Besides, I think you can tell that filing tax debt bankruptcy is no walk in the park. Do any of the above rules and requirements sound a bit complex to you? That's because they are. Tax debt bankruptcy involves multiple factors. Specific tax debt bankruptcy advice should be sought from your attorney. But first, let us consider all avenues you might take. Contact IRS-Tax-Settlement-HQ.com today for a free consultation with a tax debt specialist who may be able to qualify you for an OIC.
Call now or fill out the form below for a free tax debt consultation to get help with your IRS tax debt bankruptcy! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.