Taxes and Bankruptcy

: Reese Baker & Associates

  Filed under: Taxes

If you have back taxes yet to be paid and you are overwhelmed in debt, you may want to file bankruptcy to eliminate those taxes. Specific rules apply, but if your taxes are at least three years old, you may be able to discharge that debt.

If the date of your tax return is less than 240 days old, your tax debt cannot be eliminated in bankruptcy. You also cannot be guilty of tax fraud or tax evasion to have your tax debt discharged.

The current rules are for discharging your tax debt:

  • The due date on your tax return must be at least three years old before you file bankruptcy.
  • The assessment from the IRS is at least 240 days old.
  • Your return was filed at least two years before you filed for bankruptcy.
  • You aren’t guilty of tax fraud or tax evasion.

As part of the Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005, all of your tax returns must be filed and copies sent to the bankruptcy court. If you are filing Chapter 13 bankruptcy, the “reorganization bankruptcy,” you must submit to the court your tax returns for the previous four years before you filed for bankruptcy.

File Current Taxes

If you are unable to pay your current taxes when they are due, you will still want to file on time even if you can’t pay. By filing your tax forms anyways, this will limit your penalties and prevent any appearance of tax evasion. You can also request extensions or installment agreements.

By filing bankruptcy, whether or not you can eliminate your tax debt, you will be able to eliminate other unsecured debt such as credit cards, medical bills, payday loans, and past utility bills. By filing bankruptcy, you will free up some of your income to pay the debt you won’t be able to discharge.

If you have tax debt or are overwhelmed with debt, contact a Rio Grande bankruptcy attorney to find out what options you may have to eliminate your debt.