TAX DEBT BANKRUPTCY DISCHARGES

Did you know that some debts aren’t eligible for bankruptcy? This is often the case for unsuspecting individuals that have a large tax debt. The reason is that tax debts do not always qualify for bankruptcy debt relief. However, there are some cases in which a tax debt can qualify for a discharge of debt liability in bankruptcy.

Tax Debt Eligibility

Tax debts can be eligible for a bankruptcy discharge if:

(1) The taxes are income taxes.

(2) The taxes were not accrued fraudulently and/or there was no attempt to evade payment.

(3) A tax return was filed for the debt seeking to be discharged.

(4) The debt is at least three years old (from the date the tax return was due) from the time of filing for bankruptcy.

(5) The income tax debt has been assessed by the IRS at least 240 days prior to filing for bankruptcy.

Tax Debt Discharges

If a tax debt meets the conditions above and is eligible for bankruptcy, it is essential to evaluate your eligibility for discharge under a bankruptcy. This is because tax debts are sometimes priority debts; ones that must be repaid. In a Chapter 13 bankruptcy, the tax debt is given priority of payment from the repayment amount owed. The remaining general unsecured creditors seeking repayment are given lower priority as part of the repayment plan. So if you were to file for bankruptcy carrying tax debt and credit cards, all of your Chapter 13 payment funds would go towards paying off the tax debt first, followed by the credit cards.

Like much of the bankruptcy process, tax debts can be complicated. It is always wise to seek guidance from an experienced Sacramento bankruptcy attorney to help you make the right choice for your debt.