Bankruptcy and taxes are linked in many ways, but one of the most important ways is that a Chapter 7 bankruptcy filing can help someone clear out old tax debts so long as they qualify for the discharge process. Many people may not think that a bankruptcy filing could help them in this manner, but it is one of the many critical elements inherent to bankruptcy.
If you are carrying tax debt, you could turn to a Chapter 7 bankruptcy to discharge the tax debt. In order to qualify, however, you have to meet a number of criteria. Here are those requirements:
- The taxes in question must be income taxes.
- You must have filed a legitimate tax return in relation to the taxes in question.
- Your tax debt must be at least three years old. In addition, the Internal Revenue Service must have assessed your tax debt at least 240 days prior to you filing for bankruptcy.
- You must not have committed tax evasion or tax fraud.
If you meet all of these criteria, then a bankruptcy filing could clear out your tax debt. Unfortunately though, if the IRS filed a tax lien prior to your bankruptcy filing, the discharge process will not remove the lien from your record.
Should you have tax debt under your name and if you are in financial trouble as a result, then you should consider a bankruptcy filing to help your case. Consult with an experienced bankruptcy attorney to ensure your case is handled properly.
Source: FindLaw, “Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy,” Accessed Dec. 4, 2015