Tuesday, October 15, 2013

Giant Bankruptcy Myth - You can't discharge taxes in bankruptcy - FALSE!!!

I see a lot of clients who assume that a bankruptcy won't help them with their tax debt problems.  They figure that since they owe money to the State or Federal government that they will have to live with it forever.  THIS IS NOT TRUE!!!

I commonly provide options to debtors to solve tax debt through Chapter 7 or Chapter 13 bankruptcy.

Many times, you can actually discharge income tax debt in a bankruptcy. To do this, the taxes must be due more than 3 years before the bankruptcy filing, the taxes must have been filed on time, or within 2 years of the bankruptcy filing, no fraud involved and the taxes must have been assessed at least 240 days before the bankruptcy is filed.

When tax debt is an issue your attorney must be very careful to understand all of the timelines and it is also a good idea to order tax transcripts to check the dates.  Even if it appears the taxes are dischargeable based on the above information there are traps to be concerned about - extensions, audits, liens, offer in compromises, etc. can all have an impact on the general time rules. You should have an experienced attorney if you plan to file bankruptcy and have tax debt.

If you can't eliminate your income tax debt you can force the IRS or State into a repayment plan on your terms and stop interest and penalties from accruing.  You can do this by filing a Chapter 13 bankruptcy.  In Chapter 13 all non-dischargeable income tax debt must be paid in full in your plan.  It is very important to have an experienced chapter 13 attorney whenever you are considering chapter 13, but especially if you have tax debt.

For more information visit www.pacificbankruptcy.com