Can Bankruptcy Clear that Income Tax Debt I Owe This Year?
If you have already been struggling with debt and making monthly payments to creditors, finding out that you owe even more debt in personal income tax can be demoralizing and devastating. In the months around tax time, Florida residents often go to tax preparers or use online software to find out if they can expect a tax refund and learn that they will actually owe the federal government money. Sometimes unexpected taxes arise if you had debt forgiven in the last tax year (forgiven debt is taxable as income), if you did not have enough withheld, if you were ineligible for credits you were expecting, or if you are part of the gig economy and did not make enough estimated tax payments.
No matter what the reason is that you owe income tax this year on last year’s taxes, you may be wondering if it makes sense to file for bankruptcy to try to have that debt discharged along with other significant debts you owe for which you have already been considering bankruptcy. In short, filing for bankruptcy will not clear last year’s income tax debt. Our West Palm Beach bankruptcy attorneys can clarify.
Tax Debt is an “Exception to Discharge”
Generally speaking, tax debt is not dischargeable. It is identified as one of the exceptions to discharge in the US Bankruptcy Code, and debtors should not anticipate being able to discharge any type of tax debt unless they have discussed the specifics with a bankruptcy lawyer.
There is, however, an exception for certain personal income tax debt. To be clear, in some limited circumstances, personal income tax debt may be dischargeable.
Some Older Personal Income Tax Debt May Be Dischargeable
The only way personal income tax debt can be dischargeable is if it meets a number of requirements, including being older debt. In other words, you will never be able to have personal income tax debt from the return you are filing this year discharged in a present bankruptcy filing. In several years, however, that personal income tax debt that you have just learned you owe could be dischargeable.
What are the requirements for clearing personal income tax debt? Your federal income tax debt must be at least three years old and it must have been assessed by the IRS at least 240 days before your bankruptcy petition gets filed. In addition, you cannot have committed willful tax evasion or fraud. To determine any other relevant requirements, you should seek advice from a bankruptcy attorney in West Palm Beach.
Contact a West Palm Beach Bankruptcy Attorney Today
If you have any questions about the dischargeability of particular debts, or if you have general concerns or inquiries about personal bankruptcy, it is important to seek legal advice. While tax debt is among the “exceptions to discharge” identified in the Bankruptcy Code, as we have discussed above, there are some circumstances in which it may be possible to have your personal income tax debt discharged. To find out more, you should get in touch with one of the experienced West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller. Contact us today to discuss your financial circumstances and your options.
Source:
law.cornell.edu/uscode/text/11
