How to Discharge or Better Manage Your Tax Debt
Every year, hundreds of thousands of Americans file for bankruptcy, many of them struggling to repay tax debts. Falling behind on paying taxes is nothing to be ashamed of – it happens to the best of us. The good news is that both individuals and businesses can find relief by filing for bankruptcy.
Methods to Eliminate Your Tax Debt
There are many ways you can settle your tax deb with the IRS. These methods include:
- Creating Installment Agreements or Partial Payment Installment Agreements
- Submitting an Offer in Compromise to settle for less than the full amount owed
- Placing Your Account in Currently Not Collectible Status
- Filing for Bankruptcy
Can Tax Debts Be Discharged?
Unfortunately, most tax debts cannot be discharged in bankruptcy. You will still have to pay many types of tax debt after Chapter 7 or Chapter 13 bankruptcy.
Under certain circumstances, however, certain tax debts can be discharged. If you meet the requirements and have dischargeable tax debts, bankruptcy can be a saving grace for your finances.
You can completely eliminate your debt federal income taxes through Chapter 7 bankruptcy if:
- Your tax debts are all income taxes
- You did not act fraudulently or commit tax evasion
- Your tax debt is at least three years old
- You filed an accurate tax return
- Your income tax debt has been assessed by the IRS at least 240 days prior to filing for bankruptcy
If you meet all these criteria, you may be able to eradicate your income taxes through Chapter 7.
Nondischargeable Tax Debts
Keep in mind that tax liens cannot be discharged through Chapter 7 bankruptcy. Any lien that was recorded before you filed for bankruptcy will remain in place and you will have to pay it off.
Other nondischargeable tax debts include:
- Property taxes
- Trust fund taxes
- Certain employment taxes
- Tax penalties
- Erroneous tax refunds
When you file for bankruptcy, an automatic stay goes into effect. An automatic stay protects debtors from creditor harassment and from all collection efforts during bankruptcy proceedings. That means the IRS won’t be able to send collection notices, garnish your wages, or offset your tax refund.
Address Your Tax Debt through Bankruptcy
Overall, bankruptcy can be a great way to either completely discharge your tax debt or, at the very least, make it more manageable and give you some breathing room. Usually, Chapter 7 is the way to go if you owe significant tax debts. That said, it is best to consult with a knowledgeable Tampa bankruptcy attorney to see which type is best suited to your unique situation.
Call Sandra L. Hibsch, P.A. at (813) 328-5554 to learn more and get started with a free consultation.