You may have heard that tax debts are not eligible for a discharge in bankruptcy. While this statement is not 100% true, there are some important things to note about handling tax debts in bankruptcy.
Eligibility— It is true that not all tax debts are eligible for bankruptcy, but income tax debts can be. The basic guidelines for including tax debts in your bankruptcy discharge are: (a) if the taxes are at least 3 years old, (b) have been assessed by the IRS, (c) have a tax return on file with the IRS, and (d) are not taxes associated with fraud or tax evasion.
Chapter—In a Chapter 7 bankruptcy, your tax debts will be considered a priority debt. In other words, the IRS will become of the top creditors deserving of repayment through your liquidation proceedings. The court will determine which of your non-exempt property, if any, is to be liquidated to satisfy debts to your priority creditors. In a Chapter 13 bankruptcy, tax debts will also be a priority debt and will receive a larger portion of your monthly payment. Most of the tax debt will be paid off by the end of your 3 to 5 year plan.
Options – Even if you are not eligible for a discharge of your tax debts in bankruptcy, your New Port Richey bankruptcy attorney can still help. Your attorney can help stop any garnishment or legal action against you while you negotiate a payment plan with the IRS. Your attorney will be able work with the IRS to help you secure an installment plan or Offer In Compromise agreement to settle your tax debts.