Tax Debt and Your Options

Can I eliminate my tax debts in a Chapter 7 bankruptcy?

Owing money to the IRS can be frightening. Tax debt is perhaps one of the most feared debt by consumers, but the good news is that you do have options when it comes to resolving tax debts. Tax debt includes any taxes owed to the IRS after the filing deadline has passed. Unpaid taxes may subject you to substantial penalties. Additionally, the IRS has far reaching power to collect on unpaid taxes, including wage garnishment and seizure of assets. Our Miami Valley, Ohio bankruptcy lawyers discuss your options for relief of tax debt below.

Discharging Tax Debts in a Chapter 7 Bankruptcy

Tax debts can only be discharged in a Chapter 7 bankruptcy under limited circumstances. Requirements that could allow you to discharge a tax debt in bankruptcy include:

  • You owe money in income taxes;
  • The tax debt is at least three years old;
  • You filed a tax return for the debt you wish to discharge at least two years ago;
  • You did not commit fraud or willful evasion to avoid paying the taxes;
  • The debt was assessed by the IRS at least 240 days before you file for bankruptcy.

If you meet these qualifications, it is important that you file for bankruptcy before the IRS has taken the step to record a lien on your property. Bankruptcy can eliminate your personal obligation to pay a tax debt, and will prevent the IRS from seizing your assets or wages. However, it will not erase an existing tax lien. Accordingly, those unable to pay taxes should consult with a bankruptcy attorney early on to find out more about their legal rights.

Other Options If You Cannot Pay Your Taxes

For those who are not eligible to file for Chapter 7 bankruptcy or wish to avoid this step, there may be other options. It is first important to always file your tax return, even if you cannot pay your taxes. Request an extension to pay. Depending on your financial situation, an extension may give you the time you need to pay your taxes.

Those still struggling may wish to consider asking the IRS for an installment plan. An installment agreement will allow you to make monthly payments to satisfy your tax debt. You will still accumulate interest and penalties. Alternatively, you could settle the debt for less than you owe through an offer in compromise. Contact a bankruptcy attorney in your area for more information about your tax debt relief options.