No one looks forward to preparing and filing their taxes. Just like most Americans, many Georgian residents are very confused about what forms they need to fill out and how much money they need to send the government (if any) every tax season. Filing taxes can be even more stressful if the person has experienced a particular financial hardship during the year. Every April, our office receives multiple phone calls from Georgians who are curious about how filing for bankruptcy can affect their tax obligations and their tax refunds.
While it is true that in many cases tax payments are exempt from the Chapter 7 bankruptcy discharge, there are certain situations where these payments may still be wiped away. Read on to learn more about how filing Chapter 7 can potentially help you discharge your tax debts.
Requirements for the Chapter 7 Discharge of Tax Debts
First, it is important to highlight that Chapter 7 only allows for a discharge of federal or state income-based taxes; no other types of taxes will qualify. This can be very disheartening for some Georgians who have tax liens (also known as secured taxes) attached to their property, as these taxes cannot be discharged. Other forms of non-dischargeable tax debts include recently assessed property taxes, recently incurred non-punitive tax penalties, and taxes that are collected by a third party. These types of taxes are sometimes referred to as “trust fund” taxes. They include an assortment of different types of taxes such as Medicare, Federal Insurance Contributions Act (FICA), and certain kinds of income and sales taxes.
Second, the taxes that you are trying to discharge must be listed on a tax return that was supposed to be filed with the IRS or the state at least three years before the Chapter 7 bankruptcy; and you must have filed the tax return at least two years ago.
Another requirement is that the appropriate taxing authority must have assessed the taxes at least 240 days before the filing of the Chapter 7 bankruptcy. (There are a few situations where this timeframe can be extended. One of our experienced bankruptcy attorneys will be able to explain these circumstances to you if you contact our office).
A very crucial requirement is that the case does not contain any willful evasion or fraud. The tax return cannot be fraudulent and the person filing the return cannot have engaged in any intentional acts of misrepresentation or evasion of the U.S. tax laws.
Other Factors to Consider
An important factor to consider when evaluating whether filing Chapter 7 is right for you, is the fact that not everyone can qualify to file this type of bankruptcy. Specifically, if you have access to a certain level income that could be used to pay a portion of your debts, you may be disqualified from filing for Chapter 7 based upon something called the Means Test .
However, even if you do not qualify for Chapter 7, filing a Chapter 13 bankruptcy may still help you alleviate at least some of your tax burden. Filing a Chapter 13 bankruptcy allows you to come up with a payment plan that provides for adjusted payments to your creditors. Basically the Chapter 13 plan can make the IRS work with you on an installment plan to help you catch up on your outstanding tax liabilities.
To learn more about how filing for bankruptcy may help you alleviate your tax debt burden, contact us today to speak to an attorney about your case. We look forward to speaking with you!