When can a tax debt be discharged in personal bankruptcy?
For those struggling with debt, bankruptcy may be the best option for relief. Although the idea of a fresh start is tempting, some will warn that not all debts are dischargeable in personal bankruptcy. Some of these nondischargeable debts are domestic support debts, student loan debts and tax debts. While this is generally the case, it is not completely impossible to discharge tax debts.
Federal Tax Debts
If you are seeking to discharge tax debts, Chapter 7 bankruptcy is the best option because it allows tax debts to be discharged under certain circumstances. The only federal tax debts that can be discharged are income tax debts and specific requirements must be met in order for this to happen. Fraud must not be present for a tax debt to be discharged.The tax debt must also be at least three years old, meaning that the return was due at least three years ago. In addition, the tax return must have been filed at least two years prior to the filing of bankruptcy. Finally, the assessed debt must have been at least 240 days old prior to the bankruptcy filing or have not been assessed at all at the time of filing. If all of these conditions are met, the bankruptcy court will consider eliminating the tax debt.
State Tax Debts
The State of Ohio also discharges tax debts under certain circumstances that are similar to the federal requirements.The requirements include that there be no fraud or tax evasion present, that the debt is at least three years old, that the tax return was filed at least two years prior to the bankruptcy filing and that the assessed debt is at least 240 days old at the time of filing.
While it is difficult to discharge tax debts in a personal bankruptcy proceeding, it not impossible. You should contact a skilled tax attorney to find out what your options are.