Tax debts can sideline anyone, even those who take great care with their finances. Not only does a significant tax debt pose serious threats to a person's financial world, the government is a formidable force with significant power and reach to recover what the debtor owes. If not handled properly, a person may find that he or she has a very serious financial problem without many clear paths out of hardship.
Fortunately, it is possible to discharge many tax debts through a Chapter 7 bankruptcy. If you or someone you know faces a serious tax burden and needs relief, you should consider the opportunities that Chapter 7 may offer you. While bankruptcy does entail some significant restrictions on your financial behavior, it may provide exactly the help you need to get back on track and out from under the thumb of the government.
What kinds of tax burdens are dischargeable?
Not all tax debts are eligible for discharge, only income tax debts. Those accrued by payroll taxes or penalties for tax fraud are not generally eligible for discharge, and only assuming that the debtor meets certain requirements.
- Properly filed returns. It is not possible to discharge tax debt if the debtor did not file proper tax returns for the years in which the debt arose.
- Sufficient debt age. A tax debt must be at least three years old before Chapter 7 bankruptcy can offer a discharge
- Qualification under the 240-day rule. The IRS must assess the debt at least 240 days prior to the debtor filing for bankruptcy.
- No willful evasion. The debtor may not commit willful tax evasion and then attempt to discharge debt that arises from the willful evasion.
Tax debts and federal property liens
If the federal government chooses to place a lien on a piece of property because of a tax debt, discharging the debt does not necessarily remove the lien. In most cases, it is necessary for the debtor to pay off the debt associated with the lien before he or she can sell the property.
Are your ready for a Chapter 7 discharge?
If you find yourself under the burden of a tax debt, it is worth understanding how a bankruptcy may offer you relief and the restrictions that you may face. An experienced bankruptcy attorney can help you examine your own circumstances to determine a strong strategy and help you move forward into a new season of your financial life while keeping your rights and privileges secure.