How Your Tax Debt and Bankruptcy Can Work Together

Posted by William Kain on January 5, 2017 at 4:00 PM
William Kain

Tax Debt and BankruptcyQuite often, people considering bankruptcy have tax problems in addition to debt problems. They are surprised to learn that bankruptcy can also offer relief from income tax liability.

Qualifications to discharge Tax Debt in Your Bankruptcy

If you meet certain conditions, you may qualify for a discharge of your income tax liability. If you do not meet all of the requirements, you may be able to include your income tax liabilities in a Chapter 13, in which you would set up a repayment plan and avoid enforcement actions, such as levies on bank accounts or wage garnishments.

In order to have your income tax liability discharged, you must meet the following conditions:

  • The tax return must have been due at least three years before you file your bankruptcy case. Count back three years from April 15th (the normal filing date for tax returns) to see if your taxes are old enough to qualify for a discharge.
  • YOU must have filed your income tax return at least two years before you file for bankruptcy. If a taxing authority filed a tax return for you, those income tax liabilities may not be discharged, but if you filed it yourself, you may qualify.
  • The tax liability must have been assessed against you for at least 240 days before you file for bankruptcy (approximately 8 months). If you filed a return and claimed a refund but later learned that you owed money, the date of the assessment is when you were notified of the error. On the other hand, if you filed a return indicating that you owed a liability to the government, you have self-assessed the tax and your filing date is the same as the assessment date.

Using Chapter 13 Bankruptcy To Re-pay Tax Debt with easy payments

But what if you don’t meet all of these conditions? You may still be helped by bankruptcy. By filing Chapter 13, you can propose a repayment plan (three to five years). While in this repayment period, the taxing authorities cannot assess or collect any penalties. This saves you money and gives you time to repay your taxes without any enforcement actions by the taxing authorities.

Need Help? Contact a MN Bankruptcy Lawyer at Kain & Scott

If you have tax debt, bankruptcy might be a tool that you can use to resolve them. If you have questions, please come in for a free initial consultation and we’ll see if we can help.

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Topics: Bankruptcy, Taxes

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