One of the top questions my bankrupt clients ask me is, “Can I file for Chapter 7 bankruptcy on my income taxes?” The answer is YES, but there are several requirements before doing so. This article will try to shed some light on what those requirements are.
The first concern is that the taxes in question are based on income taxes and not some other form of tax. Which means that the debt in question must be from the federal or state IRS or taxes based on gross income. Second, the statement on which taxes are owed must be at least three years old. These due must be at least three years old before you plan to file your Chapter 7 bankruptcy petition. This should also include any extensions that have been filed, which would be added at the end of that three-year period. Furthermore, the declaration in question must have been filed at least two years before. It is also important to know that to avoid any objection in bankruptcy court from the tax authority, the statement must be executed, mailed, and complete enough to be considered an actual statement for these purposes. Another requirement is that the taxes have been assessed at least 240 days ago. Which means that the tax authority in question must have assessed the debt against the person filing for bankruptcy at least 240 days before filing the bankruptcy application, which means that it has been recorded as debt in the records of the tax authorities at least 240 days before submission. the bankruptcy petition. The final requirement for the liquidation of the income tax in the event of bankruptcy is that there was no fraud or willful evasion of said taxes. Essentially, the return must not be fraudulent or frivolous and the party submitting it cannot be guilty of intentionally circumventing any law.
It is also important for the bankruptcy applicant to realize that not all tax debts are dischargeable under Chapter 7 bankruptcy, you cannot get rid of debts not related to income tax. The following is a brief description of the types of taxes that are not dischargeable under Chapter 7 bankruptcy. Tax ties that are also known as guaranteed taxes and are tied to a property, such as your home, cannot be canceled in a Chapter 7 bankruptcy. Basically, you will not be responsible for paying the taxes, but if the tax authority placed a link on your property to secure debt, this will not remove the link. Your bankruptcy attorney might file a motion to avoid links, but links placed on the property, just as if you had a lawsuit on a link against your property, are not automatically removed through bankruptcy proceedings. Another form of tax that cannot be downloaded is recent property taxes. If you had property taxes assessed before filing for bankruptcy, that tax cannot be discharged. Although this only applies to property taxes that were payable within one year of your bankruptcy filing. Another form of tax that cannot be downloaded is the taxes that a third party must collect or withhold. These are what are sometimes called “trust fund” taxes like FICA, Medicare, and income taxes that have been withheld from your employer. There are also several other forms of taxes that are not downloadable, such as excise duties, customs duties, non-punitive tax penalties, and taxes like that. Finally, improper refunds or non-dischargeable tax-related credits will not be subject to chapter 7 bankruptcy rules.
In conclusion, you can discharge income tax debt in a Chapter 7 bankruptcy proceeding if all the requirements have been met. That is why it is always important that you seek representation from an experienced bankruptcy attorney in your area to handle these matters.
