I Owe Taxes to the Federal Government – Can Bankruptcy Help Me?

The bankruptcy system exists to help Americans obtain a clean financial slate by discharging (i.e. getting rid of) as much of their qualifying debt as possible.  If a person’s bankruptcy petition is approved, then the person no longer has to pay those qualifying debts listed on the petition.

Because of the dischargablity of many types of debt, bankruptcy can be a very attractive option to Georgians who are struggling to pay their bills.  However, not all types of debt can be discharged.  For instance, child support payments, alimony, and student loan debt are a few of the debts that are either impossible or very, very difficult to discharge in bankruptcy.  (You can read more about discharging student loan debt in my post here).

One question that my bankruptcy clients frequently ask is, “I owe taxes to the federal government.  If I file for bankruptcy, do I still need to pay the taxes?”

The answer to that question is “sometimes.”  Depending on the type of taxes owed and other requirements, a person may be able to discharge tax debt.

For example, if a person is filing Chapter 7 bankruptcy, the person may be able to discharge the tax debt if the following requirements are met:

(1)    The debt is for income tax (other types of taxes such as penalties for fraudulent tax filings or payroll taxes are not eligible for the discharge);

(2)    The person did not commit fraud on the tax return containing the debt in question (such as using a false or fake social security number on the return);

(3)    The debt is a minimum of three years old (counting from the date the tax return was originally due to the IRS);

(4)    The person in fact filed a tax return listing the debt in question; and

(5)    The IRS assessed the debt at least 240 days (approximately 8 months) before the person files the bankruptcy petition.  This requirement is sometimes referred to as the “240-Day Rule.”

Each bankruptcy case is unique and there may be additional requirements (or benefits!) for your own case.  Contact our office today to learn how filing a bankruptcy petition may help you discharge your tax debts.