Getting yourself back on track financially can seem overwhelming or impossible when you are carrying a tax burden related to your personal income taxes. While any debt burden may present serious issues, owing the federal government is even more stressful for some individuals because it has broad power to reach in and take assets or freeze accounts that other parties simply do not have, or cannot achieve as easily.
It may come as a great relief to learn that many tax debts that arise from income tax are subject to a discharge under Chapter 7 bankruptcy. While bankruptcy is rarely the first solution a debtor should consider, it offers an essential safety net of relief for many who might not have other ways out of financial hardship.
If you face an income tax debt and are looking for relief, Chapter 7 may be a good fit for you. However, taking full advantage of bankruptcy and avoiding costly missteps requires detailed understanding of the process and the potential pitfalls along the way. An experienced bankruptcy attorney is a strong resource when considering Chapter 7, ensuring that you have the tools and knowledge you need to navigate this complex process successfully while keeping your rights and privileges protected.
Requirements for a Chapter 7 debt discharge
In order to discharge a tax debt under Chapter 7, both the debt and the debtor must meet a number of requirements.
Only income tax debts may generally receive the discharge. Those debts generated by payroll taxes, for instance, or because of fraudulent practices generally do not qualify. Furthermore, if the debtor seeking a tax debt discharge committed willful tax evasion, this may disqualify the debtor, even if the debt otherwise does qualify.
A debtor can only request a discharge for a tax debt for which he or she actually filed a legitimate tax return. Without a properly filed tax return, the discharge will likely not receive approval.
The debt itself must also be sufficiently old. The debt must be at least three years old before the debtor may file, meaning that it was due at least three years prior to filing for bankruptcy, and the debtor may not file for the discharge until at least 240 days after the IRS assesses the debt. In some cases, if the debtor is already negotiating the debt with the IRS, this timeframe may adjust.
Your debt, your relief
If your debt and your interactions with the IRS meet the requirements, you may qualify to discharge the debt through Chapter 7. However you must take great care to make sure that you fully understand the issues at hand and how to navigate this process in order to receive all the benefits you have available.
Be sure to make it a priority to thoroughly understand your options before you move forward, to give you the peace of mind and security that you need as you move from this difficult season into the next.