Can bankruptcy help me with my income taxes? The answer: it depends
Depending on your situation, bankruptcy may be able to eliminate your income tax debt.
January 08, 2014 /24-7PressRelease/ -- Can bankruptcy help me with my income taxes? The answer: it depends
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Those who are struggling with tax debt are very often struggling with other types of debt. In fact, the other types of debt are often the reasons why people get behind on their taxes. To alleviate themselves of their troublesome situation, many turn to bankruptcy. Although bankruptcy can help with many types of tax debt, it is not a solution to all tax problems. If you are struggling with tax debt, it is helpful to know how bankruptcy would treat your debt in order to decide whether bankruptcy is right for you.
Tax debt in bankruptcy
In bankruptcy, tax debt is treated differently than other types of debt. Unlike other types of debt, which is automatically eligible for a discharge, tax debt may or may not be eligible for a discharge, depending on when the taxes were due and other factors.
In general, for tax debt to be dischargeable under the bankruptcy laws, several criteria must be met:
-The tax debt in question must be for income taxes.
-The tax debt must be due for at least three years after the tax return was due, including extensions. If the debt is due for less than this, it is not dischargeable.
-The bankruptcy filer must have filed tax returns for at least two years before filing for bankruptcy.
-The tax debt must have been assessed by the Internal Revenue Service a minimum of 240 days before the bankruptcy petition is filed. If the IRS at any time suspended their attempts to collect the tax debt during this period, the 240-day requirement may be lengthened.
-The bankruptcy filer must not have attempted to commit tax evasion or tax fraud on his or her returns.
If the tax debt in question meets all of the above criteria, filing bankruptcy will result in a discharge of the amount owed plus all late payment penalties. However, even if the tax debt does not qualify for a discharge, bankruptcy may still be able to help. As bankruptcy can discharge other types of debt that the filer is struggling with (e.g. medical bills or credit cards), it can free up more financial resources to be devoted to paying the back taxes owed. In addition, Chapter 13 bankruptcy can allow the filer to repay the tax debt over a three to five-year period interest and penalty free.
An attorney can help you decide
If you are behind on your taxes, there are other options besides bankruptcy. In some cases, it is possible to settle your tax debt for less than the amount owed by negotiating with the IRS. To learn more about the options available to you, it is helpful to consult with an experienced bankruptcy attorney. An attorney can recommend an option that would be best for your particular circumstances and work to successfully reduce or eliminate your tax debt.
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