Filing for bankruptcy, especially under chapter 7, can help get rid of several unsecured debts like credit card bills, medical bills, etc. However, certain debts like government taxes, or money owed to IRS or state of California, may or may not be discharged during bankruptcy. It is important to seek legal counsel, suggest Los Angeles based bankruptcy law firm Recovery Law Group to know more about this matter. To get your state and federal taxes discharged during Chapter 7 bankruptcy, you need to clear certain hurdles.
- More than three years have passed from your tax due date.
It is important that it has been more than 3 years since your taxes were due for getting a chance at having tax debts discharged. In case your 2014 taxes were due on April 15, 2015, the discharge date for 2014 taxes is pushed back to April 15, 2018. An extension could further delay the timeline.
- Your tax returns have been filed for more than 2 years.
IRS and California State, both taxing authorities ensure that they have enough time to study the tax return papers and collection process. Filing of late tax returns and then filing of Chapter 7 bankruptcy case the same time will not provide them with enough time to evaluate your income, assets, and your claims. Filing tax returns at least 2 years prior to filing provides ample enough time to ensure that everything is in order. If your tax returns are filed and sorted for two years or more, you have a better chance of getting rid of tax debt during bankruptcy.
- Tax debt has been assessed for 240 days prior to filing.
State and federal taxes are assessed at different times. While IRS assesses taxes within 6 weeks of return filing, every state has a different timeframe. Thus, your tax debts must have been assessed at least 240 days prior to bankruptcy filing to improve your chances of getting rid of tax debts.
- You haven’t committed fraud.
Everyone deserves a second chance. In case you have a legitimate reason for not filing of taxes, you don’t have to worry much; however, if you made any attempt to cheat the system (like filing false tax returns, etc.) you reduce your chances of getting a discharge abysmally.
Can you get rid of tax debts using Chapter 13 bankruptcy?
In this case, a repayment plan is drafted keeping in mind your disposable income, your assets, and your debts. Priority taxes (tax debts due for less than 3 years) need to be paid in full, generally without penalties, during Chapter 13 repayment plan. Any non-priority taxes (tax debts) are treated in a similar fashion to unsecured debts like credit cards, etc. They are paid according to the debtor’s disposable income as per the repayment plan. Thanks to the automatic stay, IRS and the state authorities cannot initiate any collection actions including wage garnishments, threatening phone calls, lawsuits or foreclosure.
People are often confused regarding which chapter of bankruptcy would suit their case. It is therefore important to consult expert bankruptcy lawyers at 888-297-6023 to find out if bankruptcy or debt negotiation is a better option for you.