People often wonder if filing for bankruptcy could wipe their slate clean from IRS tax debts. The answer is a qualified yes but it depends on your situation. Bankruptcy can discharge older income tax debt that qualifies, and it can also help you arrange a payment plan that is lower than what the IRS would offer. For many people, filing for bankruptcy is indeed the best option to eliminate tax debts.
Which debts with the IRS can be discharged in a bankruptcy?
Not all debts with the IRS can be discharged through bankruptcy. For your taxes to be discharged in bankruptcy, they must meet the following criteria:
- You completed and filed a tax return for the back taxes in question.
- No fraud was committed, and you have not evaded paying what you owe.
- Your back taxes are from at least 3 years before filing bankruptcy.
- Your back taxes are income taxes.
- The IRS tax assessment was conducted at least 240 days before filing.
With Chapter 7 bankruptcy, it’s sometimes possible to eliminate all dischargeable back tax debts with the IRS. That’s why it’s often used by individuals with significant income tax debt who are unable to pay it back. However, it should be noted that Chapter 7 cannot be used to discharge payroll taxes, and it’s best to consult with an experienced bankruptcy attorney in the Bronx before deciding which type of bankruptcy to file.
In addition, keep in mind that the IRS offers payment plans for those who are unable to pay their taxes in full or on time. Your balance due is subject to interest and a late payment penalty.
The “automatic stay”
Another benefit of bankruptcy is that as soon as you file, a court order called an “automatic stay” goes into effect. This order prevents creditors, including the IRS, from continuing their debt collections throughout the duration of your bankruptcy case. This reprieve from the harassment of creditors during your bankruptcy can allot you the time and space needed to think out and plan your financial future.
Contact an experienced bankruptcy attorney in the Bronx
If you have back taxes and are considering filing for bankruptcy, contact the law offices of Thomas M. Denaro, Esq. With over 30 years of experience in bankruptcy law, he has a genuine desire to help his clients overcome their financial problems and get back on their feet. Call the law offices of Thomas Denaro, Esq. today at (718) 863-6000 for a free consultation or click here to contact us online.