Three Things to Know About Tax Debt and Consumer Bankruptcy

When you are considering personal bankruptcy and some of your debt is tax debt, it is critical to understand that tax debt is not like other types of consumer debt when it comes to bankruptcy. To be sure, there are only specific circumstances in which you can be eligible to discharge tax debt, and only particular types of tax debt can be discharged in a consumer bankruptcy case. The following are three important things to know about tax debt and consumer bankruptcy. If you have additional questions or need assistance with your case, you should reach out to a Chicago consumer bankruptcy lawyer.

1. You Should Not Assume Your Tax Debt is Dischargeable in a Consumer Bankruptcy Case

If you have tax debt and you are planning to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, you should not assume that your tax debt will be dischargeable. As the Internal Revenue Service (IRS) explains, bankruptcy can be an option to discharge tax debt in some circumstances, but not all tax debt is dischargeable. If you have tax debt that is not dischargeable and the tax debt is the primary reason for your bankruptcy filing, you should work with an attorney on alternate options. For example, you might be able to work out a payment plan or an offer in compromise with the IRS.

2. Some Types of Tax Debt May be Dischargeable

While tax debt is different from consumer debt, like credit card debt or medical debt, in that certain conditions must be met in order for the debt to be dischargeable, it may be possible to discharge your debts when you file for bankruptcy. In order to have tax debt discharged in a Chapter 7 bankruptcy case, all of the following must be true:


Your tax debt is income tax debt, as opposed to payroll tax debt, for example;
  • You have not filed a tax return that is fraudulent;
  • You have not avoided filing your income tax returns for the purpose of avoiding your tax liability (and you have in fact filed your tax returns on time in the years leading up to your bankruptcy filing);
  • You filed a tax return for the tax debt you want to have discharged must have been filed at least two years prior to the date you filed for bankruptcy; and
  • Tax debt was assessed at least 240 days before you filed for bankruptcy.
3. Tax Liens are Different From Tax Debts

You need to know that tax liens are different from tax debts. If the IRS placed a lien on your property as a result of tax debt, you cannot have the tax lien removed by filing for bankruptcy.

Contact an Oak Park Consumer Bankruptcy Attorney

If you have any questions or concerns about filing for bankruptcy, or if you have particular inquiries about discharging tax debt in your bankruptcy case, it is important to speak with an Oak Park bankruptcy attorney. An advocate at our firm can discuss tax debt and personal bankruptcy cases with you, and can help you to determine whether your debts will be eligible for discharge in a bankruptcy case. Contact the Emerson Law Firm for more information about how we can assist you.


See Related Blog Posts:
How Should I Time My Bankruptcy Filing?
Frequently Asked Questions About Bankruptcy Exemptions

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