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Letting go of tax debt through bankruptcy

On Behalf of | Feb 15, 2017 | Personal Bankruptcy

Tax season is certainly not fun for people dealing with debt. Not only are creditors breathing down their necks for payments they may not have, they may have to endure the possibility that they may owe income taxes at a time where most people are anticipating refunds. For many people, their income tax refund check is the largest check that they will receive all year (outside of their regular paycheck).

However, if they do not receive this and end up owing Uncle Sam money, they could be in an unenviable financial position. Keep in mind that the IRS may garnish wages and place liens on property to recover past due taxes. For those in such a tough spot, bankruptcy may be the best way to get out of debt.

Tax debt is generally non-dischargeable. However, there are certain circumstances where it may be eliminated in bankruptcy. If the debt is assessed at least 240 days before the petition is filed, stems from a legitimate tax return, and the debt is at least three years old, it may be subject to discharge just like any other form of unsecured debt (i.e. credit card debt, medical debts, service debts). If tax debt is discharged, the IRS may not take any further actions to collect the debt, and the debtor no longer is required to pay the debt.

Further, debt accruing as a result of tax fraud or tax evasion cannot be discharged in bankruptcy. If you have additional questions about bankruptcy, an experienced attorney can advise you.