It is possible to have some tax debts discharged in bankruptcy. However, not all tax debts can be discharged, so you should discuss these issues with a bankruptcy attorney and a tax attorney prior to filing bankruptcy.
Bankruptcy and Tax Debt
The automatic stay in bankruptcy impacts the IRS along with your other creditors. If you have impending bank accounts levies or wage garnishments, the IRS will have to release them until the automatic stay is lifted.
The IRS will generally be unable to take enforced collection actions during the automatic stay. However, your tax debt may be treated differently than some other debts during the bankruptcy discharge.
Getting Rid of Tax Debt
Tax debt is only eligible for discharge in Chapter 7 if all of the following apply:
- The tax debt is at least three years old.
- You filed a tax return at least two years ago.
- The tax was assessed more than 240 days before you declared bankruptcy.
- No tax fraud was involved.
- The taxes are income taxes.
- The tax debt isn’t secured.
If you fail to meet any of these conditions, the IRS may have an opportunity to collect the tax debt from you even after the bankruptcy discharge. If you didn’t file a tax return, or if tax fraud was involved, you won’t be able to discharge your tax debt in bankruptcy.
The federal tax lien can also be an issue. Tax debt may be secured by a Notice of Federal Tax Lien that is filed against your property. A bankruptcy won’t wipe out a federal tax lien that was properly filed before the bankruptcy, leaving you on the hook for your tax debt.
However, the tax lien may attach to less value than the full amount you owe the IRS. This will depend on how much property you own and other factors.
Other Tax Debt Relief
If you are interested in filing bankruptcy primarily because of your tax debt, you should first consult a tax resolution attorney. You may qualify for an Offer in Compromise, installment agreement, penalty relief, or some other tax debt resolution option.
If you want to pursue bankruptcy for tax debt and other debts, make sure you understand the unique way tax debts are treated in bankruptcy. Some debts may be discharged, but others may not, depending on your situation.
Get help with IRS tax debt by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.