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5 Tax Debt Rules When Filing for Bankruptcy

March 1st

For those struggling with tax debt, filing for bankruptcy is an appealing option. When individuals choose to discharge under Chapter 7 or Chapter 13, filing for bankruptcy is one of the five ways for individuals to escape tax debt. However, tax debt must meet certain requirements to be discharged. Unless all of the following conditions are met, individuals will continue to owe tax debt past Chapter 7 and Chapter 13 bankruptcy.

 Tax Debt and Bankruptcy

To be able to file for bankruptcy and discharge income tax debt, an individual must:

  • Ensure the taxes are income taxes. Any taxes such as state or payroll tax are not eligible for elimination.
  • Have a tax assessment at least 240 days old. Before bankruptcy can be filed, the IRS must have assessed the tax at least 240 days prior to the filing.
  • Be a lawful citizen. In other words, the individual must have not committed fraud or willfully evaded tax payments. Anything such as using a false social security number on a tax return or other fraudulent activities void the bankruptcy option.
  • Have tax debt that was due 3 years ago. If you are in debt from taxes either this year or last year, you are not eligible to file for bankruptcy to eliminate tax debt. Unpaid taxes must have been due a minimum of 3 years ago.
  • File a tax return. Individuals must not only file a tax return, but it must have been filed at least 2 years before filing for bankruptcy.

Unless all five of these conditions are met, an individual struggling with outstanding tax debt cannot file for bankruptcy to eliminate it. Fortunately,  tax debt lawyers have the experience and wisdom needed to help individuals overcome their financial struggles.


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