Can I Discharge Taxes in Bankruptcy?

One of the common misconceptions about Chapter 7 bankruptcy is that it doesn’t allow for the discharge of tax liability.  While it can be difficult to wipe out tax debt by filing for bankruptcy, it’s not impossible.  Indeed, debtors who meet specific requirements when it comes to bankruptcy and tax liability may be able to discharge those debts.
However, it’s important to keep in mind that bankruptcy law itself is quite complex, and the laws governing tax debt and bankruptcy are even more complicated.  As a result, it will be extremely important to have an experienced Chicago bankruptcy lawyer who can examine the details of your financial situation.  At the Emerson Law Firm, we have been assisting consumers in the Chicago area for years, and we can take a look at your case today.  Filing for personal bankruptcy may be a solution to discharging your income tax liability.
How Do I Know If My Tax Liability is Dischargeable?
First of all, getting rid of debt is different depending on whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.  While filing for a Chapter 7 bankruptcy means that the debtor can wipe out most of his or her debts and have a fresh start, Chapter 13 bankruptcy is more of a reorganization process that results in the debtor making payments based on an agreed-upon repayment plan.  However, generally speaking, income tax debt must meet a number of criteria in order to be dischargeable through bankruptcy.
What are the requirements for discharging tax debt?  If your income tax debts meet the following criteria, it may be possible to discharge those debts by filing for personal bankruptcy:
First, the tax return from which you owe the debt must have been due for filing more than 3 years prior to the date that you decided to file for bankruptcy.  This requirement might sound confusing, but it’s actually pretty easy to grasp.  For example, let’s say you had an income tax return due for filing on April 15, 2011, and that’s the return from which this tax debt developed (in other words, even if you filed late, it’s the date the return was due that counts here).  Now, you need to wait more than 3 years from the date for which that return was due before filing for bankruptcy if you want that tax debt to be eligible for discharge.  Under the example of April 15, 2011, you’d need to have waited until at least April 16, 2014 to file for bankruptcy.
Second, that tax return that led to your income tax debt must have actually been filed at least two years prior to the date you decided to file for bankruptcy.  Under the example presented above, assuming that you filed for bankruptcy on April 16, 2014, you’d need to have filed that tax return on April 15, 2012 or earlier.
Third, you’ll need to wait more than 240 days from the time the IRS assesses your tax debt and when you file for bankruptcy.  So the three key dates involve the filing due date of the return, the actual filing date of the return, and the date on which the IRS assessed the tax that’s due.  Meeting these requirements doesn’t necessarily mean that you’ll be able to have your tax debts discharged, but you’ll need to meet them in order to have the possibility on the table.
At the Emerson Law Firm, we have been helping residents of the Chicago area with bankruptcy proceedings for many years.  Contact an experienced Oak Park bankruptcy lawyer at our firm to learn more about how we can help you handle your debts.
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