For those who find themselves in insurmountable debt, bankruptcy is often the last resort option in order to restart. But with bankruptcy comes many rules, nuances, and confusing elements that can leave the debtor feeling stressed. This stress can intensify if the debtor has incurred tax debt. While in many situations tax debt isn’t dischargeable, if it meets certain criteria, it can be. So what does discharging taxes in bankruptcy debt mean?
Discharge is the legal term that means eliminating the debt. In Chapter 7 bankruptcy, the debtor can discharge many of their debts. However, there are typically kinds of debt you can’t erase, including child support, attorney fees, student loans, and property. Among these debts that are difficult to discharge are tax debts.
To discharge tax debt, certain requirements must be satisfied. To discharge tax debt, three years must pass between the time the debt was due and the date on which the bankruptcy case is filed. Additionally, the income tax return for the tax debt must be filed two or more years before the date on which the bankruptcy case is filed. Finally, debtors also have to meet the 240-day rule, meaning the IRS has to have assessed the tax debt at least 240 days before the filing. Unless all of these requirements are met, the debtor will not be able to discharge the tax debt.
In addition to these timing requirements, the debtor also can’t have committed fraud or evasion.
The exact rules and requirements surrounding discharging taxes in bankruptcy are complicated. Add this in with the stress or uncertainty you may be feeling facing bankruptcy, and it can become unbearable.
If you’re facing bankruptcy or are preparing to file, first consult an experienced bankruptcy attorney. They have the experience and knowledge to guide and help you reach the other side. Without an attorney, you could face a much more difficult battle and lose assets that an attorney might be able to save for you.
Like mentioned, bankruptcy isn’t a simple process and it’s best to have an experienced bankruptcy attorney guide you. If you’re filing for bankruptcy, please contact us at the Badgley Law Group today. We offer a free initial consultation and have the expertise to help see you through your case.