Discharging Tax Debt in Bankruptcy

discharging tax debt

Have you ever heard the statement “tax debt is not dischargeable in bankruptcy”? Luckily that assumption is not entirely correct and relief may be available. Non-dischargeable taxes includes debts for unpaid property taxes and any debts associated with unpaid income taxes, due within the 3 years immediately prior to filing bankruptcy.

Requirements of Dischargeable Tax Debt

If your tax debt meets the following criteria, it may be discharged in your Chapter 7 Bankruptcy:

  1. The money owed is for personal income taxes.
  2. The taxes were due at least 3 years before filing bankruptcy.
  3. The taxes must have been assessed by the IRS at least 240 days before filing bankruptcy.
  4. The tax return must have been filed by you at least 2 years before filing bankruptcy.
  5. You did not commit fraud or willful evasion when filing your return.

Example: Your 2012 taxes are due on April 15, 2013.  Three years from this date would be April 15, 2016.  If you file a bankruptcy case on or before April 15, 2016 this debt will not be affected by your bankruptcy filing.  However, filing your bankruptcy case after April 15, 2016 then your 2012 and older taxes will be discharged in your bankruptcy case.

Do you owe tax debts that meet the above requirements?  Then it might be beneficial to consider bankruptcy in order to get rid of these old debts.