As we head toward the end of tax season and folks are finalizing their tax returns, many of you who owe taxes to the IRS will start to worry. Owing money to Uncle Sam can be an incredibly daunting concept, especially if the bill is larger than expected. In addition to the amount you owe to the IRS, fines can be assessed, and if you cannot afford to pay the bill, jail time is a real penalty that even celebrities have had to endure. 

Some of these folks will contact bankruptcy attorneys only to find out that new tax debts owed to the IRS are not dischargeable in bankruptcies. Regardless of this fact, it might not be a bad idea to allow a lawyer to fully assess your financial situation and discuss your options with you. Bankruptcy could still be a good option for you, and it might be the path to helping you handle the tax bills that you have incurred.

Surprise - Past Tax Debts May Be Dischargeable 

Yes, in certain circumstances, past tax debts can be discharged in bankruptcies. In order for your past tax liability to be eligible for discharge in a Chapter 7 bankruptcy, though, your income must fall within the income guidelines to qualify for Chapter 7 bankruptcy. There is a Means Test that was designed to help determine whether or not individuals and couples qualify for Chapter 7 bankruptcy. If you do not qualify, your past tax debt cannot be discharged.  

If you do meet the qualifications for Chapter 7 bankruptcy, then you will also have to meet the following conditions:

  • The tax debt must be income taxes;
  • You must have filed your tax return;
  • The taxes must be three years old or older;
  • You cannot be found to have committed any fraud when preparing your taxes; and
  • The IRS must have assessed the income tax at least 240 days prior to your bankruptcy filing.

The conditions set for income tax debt relief under bankruptcy are difficult to meet, mostly because the government would prefer to get paid, rather than allow you to wipe that debt away.  

If you have a tax debt that you cannot afford to pay and it does not meet the above requirements, there may be other options available to you. The IRS offers options like their Offer in Compromise, which essentially lowers your tax obligation. 

You might not be able to discharge your tax debt, but filing Chapter 7 bankruptcy might help you wipe out other debts so that you can pay important obligations, like the IRS. Chapter 13 might be your only option, but it can reduce your monthly financial commitments to a feasible amount, retain assets that are important to you, and help you get back on track with creditors. Additionally, since the monthly payments for your Chapter 13 bankruptcy must be practical according to your income, you should be able to work out a fair payment plan with the IRS to pay your tax liability.   

Before you make any decisions about your tax obligation, you should discuss your financial situation with an experienced lawyer who can explain the options you are eligible to take advantage of. 

Are You Considering Filing For Bankruptcy?

If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

James Roswold
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James Roswold is a Kansas & Missouri personal injury, workers comp, and medical malpractice attorney.