When Can You Discharge a Tax Debt?

We know that taxes are sometimes unnecessarily harsh or we can’t pay them whenever the IRS says we have to. That’s one of the main reason why we at Golden Tax Relief exist – we want to enable you to deal with the IRS in the way you can’t on your own.

However, despite all of that, it can still happen that you end up with a tax debt you can’t repay. That’s where bankruptcy comes into play, even though it’s something none of us want to think about, let alone experience.

It’s still inevitable and can sometimes end up being a good thing – it can allow you to discharge some of that tax debt you’ve been dragging for a while. However, only some of these debts can be removed, and we are here to talk about them and more importantly when you can discharge them.

Conditions for Chapter 7 Bankruptcy

There are plenty of ways to at least partly iron out your IRS debts, but most of them include paying most of what you owe over time. It is the case even with Chapter 13 bankruptcy, where you get a decent payment plan that can help you pay a big chunk of what you owe.

However, when it comes to discharging your tax debts, only Chapter 7 bankruptcy can be of benefit.

So how does Chapter 7 bankruptcy work?

It, unfortunately, isn’t a clean slate where all of your debts are wiped out, and you get a clean slate. This type of bankruptcy only allows for the elimination of some of your tax debts. However, you need to meet specific criteria if you want to be eligible for it.

  • The taxes you owe have to be income taxes. All other types of taxes, including payroll and fraud penalties, cannot be discharged no matter which requirements you meet.
  • Your debts must be at least three years old for you to be able to file for chapter 7 bankruptcy.
  • You must have filed a tax return at least two years before filing for bankruptcy. Naturally, these tax returns need to have been filed for the tax debt you are trying to discharge.
  • If you have committed some fraud or willful tax evasion – you are not eligible for a tax discharge.
  • Lastly, you have to meet the so-called ‘240-day rule’. That means that the income tax debt you want to discharge needs to have been assessed by the IRS at least 240 days before you file for chapter 7 bankruptcy.

All in all, these criteria might seem strict or impossible, but with timely help from a tax resolution specialist, you can get everything ready quickly.

Before we conclude, it’s worth noting that tax liens are not dischargeable. That means that even if you successfully file for bankruptcy, your tax liens that were recorded before that (if you have them at all) will not disappear.

If bankruptcy seems like the only option for you, feel free to contact us before you file, so we can adequately assess your situation and find the best solution for your specific case.

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