Can You include Past Due Taxes in a Bankruptcy Filing?

Many consumers facing bankruptcy often have back income tax issues. Back taxes can be discharged in a bankruptcy under certain federal guidelines. The following is a brief summary of the federal guidelines that must be met before a personal income tax may be discharged in a bankruptcy case:

  1. The tax must be due and owed for a period of more than three years, and the due date of the taxes is more than three years before the bankruptcy case is filed.

  2. The tax return for the tax debt at issue must be filed more than two years before the bankruptcy is filed.

  3. The tax debt issue has been assessed by the taxing authority more than 240 days prior to the filing of the bankruptcy case.

  4. The debtor filing the return must not have attempted to evade the paying of the tax nor can the debtor filing be willfully fraudulent in submitting a return.

The only other way you can get federal income tax relief is through what is called an “Offer in Compromise.” OIC is a method for resolving IRS back taxes. Offer in Compromise allows the debtor to negotiate a tax settlement payment (sometimes for less) for an outstanding tax bill owed.

Contrary to what many taxing services may imply, getting an Offer in Compromise is relatively rare. Certain conditions have to exist before a taxpayer will be forgiven any portion of the tax bill including penalties and interest on late payments. Most Offers in Compromise plans allow the  taxpayer to make monthly payments until the tax burden, interest, and penalties are paid in full.

If you cannot get an Offer in Compromise, filing for bankruptcy protection is probably the only viable solution for back taxes. There are basically two types of bankruptcies most individuals can file: Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Chapter 7 Bankruptcy, commonly called liquidation of your assets, is normally the simplest and quickest form of bankruptcy. It is the bankruptcy you can use to get back taxes discharged if they qualify.

Chapter 13 Bankruptcy, commonly called a wage earner’s plan, enables individuals with regular income to develop a plan to repay all or part of their debts over three or five years. In this bankruptcy, your back taxes, interest and penalties will be included in your plan to pay all or part of them, but only the remainder of the qualifying back taxes will be discharged. Taxes not falling within the federal guidelines can not be discharged, and you will be expected to pay the taxes, interest, and penalties after the bankruptcy is closed.

Bankruptcy laws can be complicated. Contact a bankruptcy lawyer if you have questions about your financial options. If you need relief from the stress of debt and you live in or around the metropolitan areas of Minneapolis or St. Paul, Minnesota, contact us at . We will help you find a bankruptcy attorney who will answer your bankruptcy questions.

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