Bankruptcy And Your Taxes

Some tax liabilities are dischargeable in bankruptcy.

Usually older federal income tax debts are dischargeable in bankruptcy. The tax must be more than three years old. The tax return which reported the tax debt must have been filed with the Internal Revenue Service and if it was filed, then it must have been filed more than 240 days before filing the bankruptcy petition.

Some tax penalties may also be discharged in bankruptcy and you may be able to halt the accrual of interest during the bankruptcy proceeding. If the tax debt and penalties are not dischargeable in bankruptcy then it is still possible that the tax debt and penalties can be restructured in bankruptcy.

Many tax experts believe that unpaid payroll tax which has been converted into a personal liability of the responsible person who willfully failed to pay the tax is not dischargeable in bankruptcy.

In addition to being able to discharge federal income taxes in bankruptcy, filing a bankruptcy petition may stop the IRS’s collections activities. Therefore, bankruptcy may be an option to prevent the IRS from levying on bank accounts, wages or other assets.

If your tax debt is dischargeable in bankruptcy, it may be possible that the threat of filing bankruptcy can persuade the IRS to settle your debt on more favorable terms for you.

But there are disadvantages to filing bankruptcy. For instance, IRS liens may survive the bankruptcy process and to the extent that the tax debt is not discharged in bankruptcy, the IRS may view you (who now has fewer debts) as being in a better position to pay the IRS.

Call an experienced tax attorney to help you determine if bankruptcy is an option for resolving your tax debt.