I Have a Lot of Tax Debt – Can Bankruptcy Help Me?

Debt, Debt FreeBenjamin Franklin once famously said that the only certainties in life are death and taxes – and he was right! For many Georgians, the trying economic times which resulted in job loss, decreased income, and overall depressed financial circumstances have been a true burden. One of these burdens many have experienced is increasing tax debt that they just cannot pay. Our office receives phone calls from many Georgia residents asking if filing for bankruptcy can help alleviate these tax burdens. Read on to learn more about this critically important topic, and feel free to contact us directly if you have any questions – we look forward to speaking with you!

First, it is important to understand that there are several different types of taxes and also a couple different types of bankruptcy cases. In this post we are only going to talk about Chapter 7 bankruptcy cases which are the types of cases most people think of when they think of bankruptcy. In a Chapter 7 case, a debtor sells off any property he or she can in order to pay off as much of his or her debts as possible. Once this process is over, the remaining debt is wiped away and the debtor can move forward with a clean financial slate.

Second, it must be understood that whether or not you can discharge your tax debt will depend on a number of factors such as how late the tax bills are, what type of taxes you owe, and the reason why you haven’t been able to pay them.

The following tax debts can never be discharged through a Chapter 7 case:

  1. Recently incurred property taxes. You cannot discharge these taxes unless they were incurred more than a year before you filed your Chapter 7 case.
  2. Income taxes if you owe them because you didn’t file a proper return (or you filed a fraudulent return) with the IRS.
  3. Business taxes. Business owners will not be able to discharge excise taxes, payroll taxes, or customs taxes through a Chapter 7 case.

If these types of taxes form the bulk of your tax debt, filing a Chapter 7 case may not be the best fit for your situation.

However, you can discharge income taxes as long as you meet certain criteria.

First, the income taxes that are due must not be part of a fraudulent or improper tax return filing with the IRS.

Second, you must not have deliberately tried to evade the payment of these taxes either through nondisclosure of accounts or forged documents.

Third, you must have filed a tax return for the tax at issue two years before the date you file the bankruptcy case. (To fulfill this requirement, a Substitute Return that the IRS files on your behalf does not count).

Fourth, the tax debt in question must be at least three years old or older.

Fifth, the tax must have been assessed by the IRS at least 240 days before the date that you file the bankruptcy case. However, this time period may be extended in certain cases where the IRS suspended collection efforts on the debt because they were negotiating with you on how you would pay the debt.

Please note that there are other requirements to filing for Chapter 7 bankruptcy other than the tax debt-related requirements listed above. In order to decide if filing for bankruptcy is right for you, contact our office today to speak to an attorney about your case at 404-913-1529.