Can filing bankruptcy help me with my back taxes?

With 2015 well underway, it is tax season once again. Although this time of year can be frustrating for those owing current taxes, it can also be a very difficult time for those struggling to pay back taxes. If you are one of the many Americans with tax debt, bankruptcy may be able to help.

What bankruptcy can do to help

You may have heard that bankruptcy can wipe away your credit card bills, medical debt and other obligations via discharge. Tax debt is not automatically eligible to be discharged, but it can be in certain situations. Whether tax debt is dischargeable depends on several factors. Under the bankruptcy code, taxes may be discharged if:

  • The taxes have been owed for at least three years. If you have been approved for any extensions on this debt, three years must have passed since the new due date.
  • The IRS must have assessed the taxes at least 240 days before you sought bankruptcy protection.
  • The tax return for the debt was filed at least two years before the bankruptcy was filed. Returns that were filed past the due date can interfere with your ability to get a discharge.
  • You did not attempt to defeat or evade your taxes by filing a fraudulent return.

Tax debt meeting all of these criteria may be eligible for discharge along with any accrued interest and late fees.

If your tax debt does not meet these standards, do not despair. Bankruptcy may be able to help in other ways. If your tax debt is a small percentage of your total debt load, filing Chapter 7 may be able to make it easier to repay it. By eliminating most of your other types of debt (e.g. credit cards, medical bills and unsecured debt), Chapter 7 can free up your income, allowing you to use more of it to pay your tax debt.

If your tax debt is a large portion of your total debts, filing Chapter 13 can make paying your back taxes more manageable. During Chapter 13, all of your debt is consolidated into a three to five year monthly repayment plan. Often you can pay your tax debt in Chapter 13 without incurring any additional penalties or interest on the balance. As long as you keep up with the installments, the IRS cannot attempt to collect the debt by garnishing your wages or taking other actions.

An attorney can answer your questions

Although bankruptcy can be a helpful solution to tax problems, it may or may not be the best route for you. If you are struggling with back taxes, the experienced bankruptcy attorneys at The Rose Law Office can listen to your circumstances and advise you further on the best way to deal with your tax problems.