Chapter 7 Bankruptcy Tax Debt

Contrary to popular belief, you can always discharge your income tax debts in Chapter 7 bankruptcy. However, in order to be able to do so, your tax debts must meet the basic requirements stipulated by the federal government. Chapter 7 Bankruptcy tax debt isn't cut and dry.  Here is a list of restrictions and qualifications that you need to consider. Take the time to find out the proper way to manage your tax debt and bankruptcy under chapter 7.

Chapter 7 Bankruptcy Tax Debt

In order to wipe out your federal income tax debts in chapter 7 bankruptcy, the following conditions must be met.

  • The taxes must be income based. In other words, the only kind of tax debt that is dischargeable in chapter 7 bankruptcy is the one that is levied under the federal or state income tax structure. Other taxes such as fraud penalties and payroll taxes cannot be eliminated in bankruptcy.
  • For a tax debt to qualify for discharge under bankruptcy, the return must have been due for at least three years. They must be due before you filed for a chapter 7. If your extension for the taxes payable in 2005 expired in 2006, you will be able to eliminate the debt only if you filed for bankruptcy in 2009.
  • You cannot eliminate your tax debt if you are found guilty of willfully evading your payments or for filing a fraudulent tax return by using fake Ids such as a made up social security number.
  • For your debt to be dischargeable under chapter 7, you must have a record for filing your tax returns. They must date back a minimum of two years before you filed your bankruptcy petition. If you filed a late return after your extensions expired, it won’t be eligible for a discharge under chapter 7.

In case you wish to deal with your tax debts in Sacramento bankruptcy, it is advisable to consult an attorney before proceeding with the legal processes.

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