The Cassidy Law Firm Blog

Monday, July 7, 2014

Can Taxes Be Discharged in Bankruptcy?

There are a seemingly endless number of causes of financial troubles; however, one debt that can grow large enough to be a major source of financial struggles is a tax debt. Once you get behind on taxes the debt seems to take on a life of its own, growing at an unbelievable rate. If your delinquent tax debt is part of a bigger picture of financial troubles it may be time to consider bankruptcy as a long-term solution. Be sure to consult with an experienced New Jersey bankruptcy attorney, however, before moving forward to discuss what tax debts, if any, can be discharged through bankruptcy. Often, when you file for bankruptcy plays a major role in determining whether or not tax debts are dischargeable.

Most individual (or married) debtors file for a chapter 7 bankruptcy or chapter 13 bankruptcy. Chapter 7 bankruptcy is used by lower income debtors and allows for the discharge of most debts at the end of the bankruptcy process. Chapter 13 bankruptcy is used by moderate to high income debtors and/or those who have valuable non-exempt assets they wish to protect throughout the bankruptcy process. The chapter used will determine how tax debts are handled in the bankruptcy.

In a chapter 13 bankruptcy you will develop a repayment plan that is submitted to the court for approval. The repayment plan is intended to give you additional time (usually three to five years) to repay the majority of your debts. Debts are prioritized with tax debts falling into the “priority debts” category, meaning all of your tax debt must be paid during the repayment plan period. You will, however, have the additional time within which to pay the debts.

In a chapter 7 bankruptcy most debts are discharged, providing the debtor with a fresh start. Tax debts, however, are one of the few debts that are not automatically eligible for discharge in a chapter 7 bankruptcy. It might be possible to discharge a tax debt if all the following conditions are met:

  • The debt is for income taxes. Payroll taxes and other types cannot be discharged.
  • You did not commit fraud or willful evasion.
  • The tax debt is at least three years old. The return on which the debt is based must have been due at least three years prior to filing bankruptcy.
  • You filed at least two years ago. The return on which the debt is based must have been filed at least two years prior to filing bankruptcy.
  • You pass the “240 day rule”. The tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet.

To find out if your tax debt will qualify for a discharge, and to receive a free consultation, contact The Cassidy Law Firm to speak with an experiences Monmouth County bankruptcy attorney today. The Cassidy Law Firm is conveniently located in Shrewsbury, New Jersey.  We provide legal services throughout all of Monmouth County, Ocean County, Middlesex County and all of New Jersey.  Contact The Cassidy Law Firm today to receive your free initial consultation.

  

 

*We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.


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