If your tax debt meets certain qualifications, it can be discharged if
you file for bankruptcy. Filing for bankruptcy can also give you the opportunity
to pay back your recently assessed taxes through a payment plan that is
lower than what the IRS offers. Below, we explain how
bankruptcy can help you deal with your IRS tax debts.
Will Bankruptcy Stop the IRS from Harassing Me?
Once you file your bankruptcy case, an injunction known as an automatic
stay will go into effect. This injunction informs your creditors, including
the IRS, to cease collection activity. This means your creditors will
no longer be able to send you letters, garnish your wages or bank account,
or file liens against your property.
The automatic stay will be in effect throughout the duration of your bankruptcy
case. Only the bankruptcy court can lift the stay if a creditor makes
a request. However, the creditor must have a good reason for why the stay
should be lifted. After your bankruptcy case has closed, the IRS will
be free to continue collecting debts, unless that debt has been discharged
or paid entirely.
It is important to note that although the automatic stay will go into effect
when you file for bankruptcy, it might not go into effect if you end up
filing for subsequent bankruptcies.
Which of My Tax Debts Can I Discharge?
Although you can discharge you debt in bankruptcy, not all of your tax
debts will qualify. Your tax debts will need to meet the following criteria
if you want to have them discharged:
- Your debt is for wage-related income or gross receipts.
- Your income taxes were due at least 3 years before you filed for bankruptcy.
- Your tax return was filed at least 2 years before your bankruptcy case.
Debts that weren’t filed or filed late usually don’t qualify
- Tax assessment from the IRS has to occur 240 days before you file for bankruptcy.
- You haven’t committed fraud and did not willfully attempt to evade
paying your taxes for the tax year in question.
If your tax debt situation meets this criteria, there is a possibility
that your debt can be eliminated. If you don’t meet these guidelines,
you likely won’t be able to discharge your tax debts through bankruptcy.
What About My Non-Dischargeable Tax Debt?
How your non-dischargeable debt is treated will depend on what type of
bankruptcy you file.
Chapter 7 Bankruptcy: Other than the automatic stay, filing for
Chapter 7 bankruptcy doesn’t have much of an effect on your tax debts that can’t
be discharged. If your bankruptcy case doesn’t result with your
IRS tax debt being discharged, the IRS will be free to resume their collection
actions against you.
Chapter 13 Bankruptcy: This type of bankruptcy can be used to manage your non-dischargeable tax
debts. In a
Chapter 13 bankruptcy, you propose a plan for paying your IRS debt over a three- to five-year
period. Under Chapter 13, you have the benefit of discharging your older
unsecured IRS debt, and your non-dischargeable debts will eventually be
paid off with your payment plan.
Do you have more questions about tax debt or filing for bankruptcy? Contact our Worcester team of bankruptcy attorneys
to get the answers you need.