Does Bankruptcy Clear Tax Debt?
You might get caught up in the cycle of paying taxes if you owe a lot. If you owe money over several years, it can be difficult to catch up on taxes. You may feel like you are just getting started to move ahead with the next tax year. It can seem impossible to repay the tax debt, especially if you are caught in the cycle. Should you consider bankruptcy? Does bankruptcy clear tax debt?
Some of your debts may not be dischargeable in bankruptcy. You may not be able to discharge all of your tax debts through a chapter 13 bankruptcy. You should also consider the fact that there may be multiple taxes for which you need debt relief. Bankruptcy does not provide relief for debts on property, sales, or federal taxes. You should consider the following requirements for discharge if you choose to file Chapter 13 bankruptcy or Chapter 7 bankruptcy.
- Taxes owing that are more than three years late
- You owe taxes on any debt you have accumulated for at least two years
- Assessment of tax debt that you have incurred within the last 240 days prior to filing your next tax return
- Demonstrating that you have not been convicted of fraud or tax evasion.
There is a chance you can discharge some of your tax debt if you meet these requirements. While you may be able to forgive some of the tax debt if you can prove that you meet these requirements, you will still have to repay a portion. In this situation, you may be required to set up a tax repayment plan. You can discharge your IRS debts with tax repayment plans.
You can be sure you won’t be penalized by the IRS if you work with a tax professional during the entire process of settling your debts or setting up a repayment plan. You might be eligible to lower your interest rates during your repayment plan. Negotiation could be all that is required to lower your interest rate. An experienced bankruptcy attorney may be a valuable asset in helping you to lower your IRS penalties. A bankruptcy attorney can help you learn about the different ways you might be able to get debt relief and create a plan for paying off your debts.
You may have non-dischargeable tax debts that even the best bankruptcy attorney can’t help with.
- Property taxes: Any property taxes that you incurred prior to filing for bankruptcy are non-dischargeable. While you could charge some of your personal and property liabilities, any taxes that were taxable under the Corporation prior to filing for bankruptcy will not be dischargeable.
- Tax liens: A taxation or secured tax lien will be attached to your property. This means that you cannot remove it from the amount you owe. These tax liens will remain even after bankruptcy filings. You’ll also have to pay them out of any profits you make from the sale of your property.
- Third-party taxes. Trust fund taxes like Medicare, income taxes, and FICA which an employer may have will need to be sent to the government.
- Non-punitive penalties for tax dischargeable taxes: If penalties were incurred less than three years prior to your bankruptcy filing, you could be responsible for the full payment of tax penalties.
- Employment taxes: The employer will be responsible for paying all taxes, including customs duties and excise taxes.
If you are stuck in debt and you could use debt relief from the heavy taxation debt, you should seek assistance from a bankruptcy attorney. A local bankruptcy attorney can help you get rid of some of your debts or lower your interest rates on the tax debt. Although debt relief from taxes can be achieved, it is wise to consult a professional to ensure that you go through the correct channels and proceed accordingly to eliminate the wrong debts. For a free consultation, contact us today!