In a couple of months, everyone is expected to have their tax filings submitted to the federal government and the respective state (or states) where they earn their income. The April tax day can be a blessing for some in the form of refunds. But for others, it can mean that they owe the government a lot of money. That tax debt that they accumulate may not be feasible for them at that given moment, so they delay paying it.
Obviously, this isn’t ideal. But it happens to many people every year. Their tax debt ends up hurting them in the long run, and they wonder what they need to do to get out from underneath the thumb of the IRS.
A bankruptcy filing can actually address your tax debt is you meet the criteria for such a debt discharge. If you file for a Chapter 7 bankruptcy, you can discharge your federal tax debt if:
- Your taxes involve income taxes
- You filed a proper and compliant tax return (i.e. no fraud or willful tax evasion was committed)
- You aren’t afoul of the 240-day rule (which states that the IRS must have assessed your debt 240 days prior to filing for bankruptcy)
- Your tax liability was from three years before you filed for bankruptcy.
Should you qualify under these terms and should you file a Chapter 7 bankruptcy, then you tax debt could be eliminated during the discharging process of the bankruptcy.
Source: FindLaw, “Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy,” Accessed Feb. 19, 2016