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The Law Office of Adam R. Weaver, Esq. Lehighton & Carbon County Bankruptcy Attorney

Filing For Bankruptcy for the Purpose of Tax Relief

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If you are considering filing for Chapter 7 or Chapter 13 bankruptcy, it is likely because of your mounting debt and financial obligations to creditors. While Chapter 13 bankruptcy will only allow you to restructure your existing debts, Chapter 7 bankruptcy will allow you to discharge many of your debts completely. However, eliminating debt is not always as simple as it may appear, even in a Chapter 7 bankruptcy. If you hold a lot of debt due to tax bills, you may be considering using bankruptcy for the purpose of tax relief.

Chapter 7 Discharge of Tax Debt

If you want to discharge your tax debt completely, you will need to file for Chapter 7 bankruptcy. A Chapter 13 bankruptcy will only allow you to restructure your debt, not eliminate it. However, there are certain conditions that your tax debt must meet in order to be considered dischargeable in a Chapter 7 bankruptcy, including the following:

  • The tax debt is over 3 years old.
  • The taxes are considered income taxes, not payroll taxes.
  • The tax return was filed at least 2 years ago.
  • The tax assessment was done over 240 days ago.
  • No tax fraud or tax evasion is present.

The Federal Bankruptcy Code at 11 U.S.C. Section 523 and 11 U.S.C. Section 507, set out these requirements and states that tax debts may not be dischargeable in a Chapter 7 bankruptcy unless these conditions are met.

Additionally, if the debt is from unfiled taxes, they will not be considered to be dischargeable in bankruptcy. Finally, a person must prove that the last 4 tax returns must have been filed appropriately with the Internal Revenue Service (IRS).

Filing For Bankruptcy

Filing for Chapter 7 or Chapter 13 bankruptcy may give you some financial breathing room and a fiscal fresh start. However, there are serious financial implications that occur after filing for bankruptcy such as a reduction in your credit score, and a more difficult time obtaining credit for several years. If the only large debt you have is your unpaid taxes, you may consider visiting directly with the IRS prior to filing for bankruptcy.

Settlement With The IRS

If the only large debt you have are your taxes, you may benefit from visiting with the IRS to see if they would offer a compromise to attempt to allow you to pay in a repayment plan or reduce the total amount owed. No guarantees are ever provided by the IRS, but it may be beneficial to attempt to reach a solution with the IRS directly before filing for bankruptcy due to your tax debt.

Let Us Help You Today

If you are planning on filing for bankruptcy due to your unpaid taxes, contact the Lehighton & Carbon County bankruptcy attorney Adam Weaver who can help you explore all of your bankruptcy options, and help you with the best course of action regarding your unpaid tax debt. Call 570-818-4888 or contact our office online for a consultation.

Resource:

govinfo.gov/app/details/USCODE-2011-title11/USCODE-2011-title11-chap5-subchapII-sec523

https://www.weaveresq.com/certain-va-and-dod-benefits-now-held-out-of-bankruptcy/

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