Each year, hundreds of thousands of Americans file bankruptcy. Mounting debts become too much for filers to handle on their own. Therefore, declaring bankruptcy is one of the debt relief answers. Plus, some of the debts that cause people to file, like credit cards and medical bills, are usually discharged in bankruptcy without question.
A common question our clients ask is whether their tax debts can be discharged in bankruptcy as well. Discharging tax debts is much more complicated than discharging medical bills and credit card debts. However, Chapter 7 bankruptcy, and other chapters of bankruptcy, can be a great method of addressing tax debts. For tax debt to be dischargeable, it must meet a number of requirements.
Tax Debt Dischargeability Requirements
Due for 3 years-For tax debt to be dischargeable, the first requirement it must meet is that it has been due for at least 3 years. This means each year on April 15, a new year of tax debts potentially becomes eligible for bankruptcy discharge. This year, 2020, tax debts from 2017 became potentially eligible for discharge.
Filed for 2 years– The second requirement that tax debt must meet to be dischargeable is that is must have been filed for at least 2 years. If you filed your taxes late, (whether or not you applied for an extension), these debts may be ineligible for discharge. Even though, only due for at least 3 years.
Assessed for 240 days-Your tax return will be assessed to determine if you owe any additional taxes. Your debts must have been discharged at least 240 days ago to be dischargeable.
No Fraud-If any fraud is found in your tax returns, those years will not be dischargeable. Thus, you should make sure that a tax professional takes a look at your tax returns in questions. With the goal being to discharge as much of your tax debt as possible in a bankruptcy filing. It is better to be cautious and assure there is no improprieties or fraud.
What to Do if Your Tax Debts Aren’t Dischargeable in Bankruptcy
While your debts may not be dischargeable in a Chapter 7, you can file Chapter 13 and pay your tax debts during your 3-5 year reorganized payment plan. You will be protected from garnishment on your tax debts while your bankruptcy is active. You may include more recent tax debts if you are paying them off through a Chapter 13. Some that file do so for the convenience of paying tax debts, arrearages, and unsecured debts consolidated into one payment.
How to Begin the Process of Discharging Tax Debt Through Bankruptcy
Your first step in filing bankruptcy should be consulting with at least one bankruptcy attorney, whether or not you decide to file your case with an attorney. Keep in mind that the success rate for represented filers it much higher than those who file pro se, or on their own. This is especially true in Chapter 13 Bankruptcy- the discharge rate for unrepresented filers is less than 1%. Additionally, the attorney should be able to help you decide which Chapter of Bankruptcy to file, what documents will be necessary for the preparation of your petition, etc.
Additionally, if you don’t think you will be able to pay for an attorney before your bankruptcy petition is filed, you should seek out attorneys that offer Zero Down payment plan options. If you are interested in a Vegas debt relief firm with $0 down bankruptcy filings, may we recommend; Vegas Zero Down Bankruptcy. Call (702) 842-0700.
Hiring a Qualified Debt Attorney
If you hire an attorney, your next step will be to provide them with any documents they request so they can draft your petition. You will need to take an online credit counseling course prior to filing. Pro se filers will need to prepare their own petition. Tax debts, along with the rest of the filer’s debts, must be listed with the petition along with the contact information for each of their creditors. Represented filers will review their petition with their attorney and sign it before the attorney files it for them electronically. Electronic filing is not available to pro se filers in some jurisdictions.
After Your Petition is Filed
Once the petition has been filed, the filer must comply with all requests from their Bankruptcy Trustee.Approximately 30-45 days after the petition is filed, the debtor will attend a 341 Meeting of Creditors. The filer must take a second credit counseling course within 60 days of the 341 Hearing. In a Chapter 7, the case will be eligible for discharge at this point, and the filer will no longer be liable for their tax debts. Chapter 13 filers must complete their payment plan prior to discharge. Whereas a Chapter 13 bankruptcy payment plan lasts 3-5 years.
If you are struggling with tax debts, filing bankruptcy may be a good solution to your problem. Our Las Vegas Debt Relief staff is knowledgeable and experienced when it comes to Nevada bankruptcy law. Additionally, we can help you decide if filing for bankruptcy is right for you. Plus, we will make sure that you file the best chapter of bankruptcy for your situation. Our debt relief team works with you every step of the way, from consultation through discharge.