For many, bankruptcy is a godsend that allows good people who’ve had a bad run get a fresh financial start. Whether the debt was incurred because of a sudden job loss, predatory lending or a tragic disability, Chapter 7 bankruptcy lets debtors discharge a number of unsecured debt and wipe the slate clean. Most debt can be discharged, but there are some exceptions, including things like student loans funded by the government, child support, alimony, fines incurred by breaking the law and Federal tax liens.
Many people who come in to file for Chapter 7 bankruptcy want to know whether tax debts can be discharged. Aside from the Federal tax liens mentioned above, it is possible to get some tax debts eliminated in bankruptcy court. However, there are criteria that must be met in order to qualify. They are as follows:
- Only income taxes are eligible for discharge. Fraud penalties and payroll taxes cannot ever be discharged.
- The debtor must not have committed willful evasion or fraud.
- The debt itself must be 3 years old, at minimum.
- The debtor must have filed a return for the year or years in question.
- The IRS must have assessed the tax debt 240 day before the filing of the petition for bankruptcy.
A question that goes hand in hand with the one above is the issue of the IRS conducting an audit after filing. The answer is: the IRS doesn’t pay any more attention to people who file for Chapter 7 than people who don’t.
If you’re struggling with the burden of overwhelming debt, regardless of what type, you may want to consider talking to an attorney.