Owing taxes to the government can be an overwhelming experience. The IRS has the power to come after you for these debts, and they have the ability to place liens on your property and garnish your wages to get the money you owe. What you may not know about this is that bankruptcy might be able to help. There are times when tax debts can be included in a bankruptcy case, but there are also times when tax debts are excluded from a discharge. Here are three things to know about back taxes and bankruptcy.
Back Taxes Can Be Discharged In Some Cases
Taxes owed to the IRS are usually considered debts that cannot be included in a Chapter 7 bankruptcy case, but this is not necessarily true. If the tax debt you owe meets certain requirements, you might be able to get it discharged through a Chapter 7 bankruptcy. Here are some of the requirements needed for this:
- The tax debt is owed from a tax return that was filed at least three years ago.
- The IRS placed the tax debt against you at least 240 days ago.
- The tax debt is owed for money you earned through regular income.
- There must be no fraud involved with the income or tax return for which the money is owed.
To find out if your tax debt qualifies for a discharge through Chapter 7, you should meet with a tax attorney that specializes in bankruptcies.
What You Can Do If Your Tax Debt Does Not Qualify
If you discover that your tax debt will not qualify for a discharge in Chapter 7, bankruptcy might still be an option. Through a Chapter 13 bankruptcy, you can add the tax debt to your total debts and pay it off slowly with a repayment plan. The benefit of this is that once you file for Chapter 13, you will receive an automatic stay, and this will continue until your bankruptcy plan is complete. During this time, the IRS will not be able to pursue the debt you owe, which means you will have some relief throughout your entire repayment plan.
Another option you have is to still file for Chapter 7, but this would only be helpful if you have other debts that would be discharged. If you could get rid of thousands of dollars of credit card bills, you might have enough extra money to work out a repayment plan of your own with the IRS to get the debt paid off.
One Word Of Caution Involving Tax Liens
There is one additional thing you should be aware of if you do qualify for Chapter 7 and decide to go through with it as a way to get your tax debt discharged. If the IRS had placed liens on your property prior to the filing date of your bankruptcy, you might end up having to repay these debts.
The IRS cannot place a lien on your property for a tax debt once you file for bankruptcy. Unfortunately, the IRS often places liens on properties shortly after tax debts become past-due. There is not a lot you can do if there is a tax lien on your property, except for paying it off. Even though the tax debt was discharged in your bankruptcy, you technically will still have to pay it if you sell the property the lien is attached to.
The IRS can and will come after you if you owe back taxes, but bankruptcy might help you. If you would like to learn more about your options, you can call a tax attorney to schedule a consultation appointment today.