Which Tax Debts Are Dischargeable in Bankruptcy?
When you are planning to file for bankruptcy, you are likely thinking carefully about which of your debts will be eligible for discharge. While many types of consumer debt can be discharged in an individual bankruptcy case, there are some types of debt that are considered to be “exceptions to discharge” under the US Bankruptcy Code. Tax debt is one type of debt that is commonly on the list of exceptions to discharge, and discussed as a type of debt that cannot be discharged in a bankruptcy case. In general, tax debt is an exception to discharge, but there are some circumstances in which some types of tax debt can be discharged. To determine whether or not your tax debt is dischargeable, you should speak with a bankruptcy
Tax Debt as a General Exception to Discharge
As we noted above, generally speaking, tax debt will be considered a type of “nondischargeable priority debt” that is a clear exception to discharge, as a Forbes article underscores
The US Bankruptcy Code says a bankruptcy discharge an individual receives “does not discharge an individual debtor from any debt for a tax…”
Yet, there are circumstances under which certain tax debts can actually be discharged in a bankruptcy case. It is essential for individuals who are considering a bankruptcy filing to understand whether their debts are dischargeable, including the possibility of having tax debt discharged.
When Tax Debt Can Be Discharged
The first thing to consider is the type of debt and whether it can ever be eligible for discharge. The only kind of debt that you can ever discharge in a bankruptcy case is income tax debt. Accordingly, if you have any other type of debt, it is a nondischargeable debt.
Now, if you do have income tax debt, this fact alone does not mean that your tax debt is dischargeable. You must meet additional requirements.
First, your income tax debt cannot be from the last three years — you must owe income tax debt from at least three years prior to your bankruptcy filing. Second, you must have filed income tax returns in the two years prior to filing for bankruptcy, and your income tax returns must have been submitted in a timely manner (this includes filing by an extension date you requested and received). Third, your income tax debt must have been assessed by the Internal Revenue Service (IRS) at least 240 days prior to the date you file for bankruptcy. Fourth, you cannot have attempted to evade taxes or filed a fraudulent tax return. Fifth, and finally, the IRS cannot have placed a tax lien on your assets.
Contact a West Palm Beach Bankruptcy Lawyer Today
Do you have questions about discharging income tax debt, or any other type of debt? Whether you are planning to file for Chapter 7 bankruptcy, Chapter 13 bankruptcy, or another type of reorganization bankruptcy, an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller can begin working with you today. Contact us to discuss any questions or concerns you have and to begin preparing your bankruptcy filing.
Sources:
law.cornell.edu/uscode/text/11/523
forbes.com/advisor/debt-relief/does-bankruptcy-clear-tax-debt/
