There are many ads on the TV and radio that claim tax debts can simply be eliminated through filing for bankruptcy. Unfortunately, this is not always true.
Income tax debts are able to be discharged in Chapter 7 bankruptcy if all of the following is true:
- All tax returns for the tax debt you’re seeking to discharged must have been filed at least two years before filing for bankruptcy.
- The tax debt must have been due at least three years prior to filing your bankruptcy petition.
- You must have filed a return for the tax at least two years prior to filing your bankruptcy petition.
- The income tax debt has to have been assessed by the IRS a minimum of 240 days prior to filing your bankruptcy petition.
- If a fraudulent tax return was filed or you attempted to evade paying the taxes by, for example, using a false Social Security number, bankruptcy won’t be able to eliminate this debt.
Certain events like a prior bankruptcy or an offer-in-compromise with the IRS can toll (stop) the running of these time periods. There are entire books written on how to interpret the rules for discharging a debt in bankruptcy. Be sure to obtain competent advice.
Unfortunately, even if you qualify to have your tax debt eliminated, your bankruptcy will not rid you of prior tax liens. If the IRS placed a lien on your property before bankruptcy was filed, the lien remains. This requires the debtor to satisfy the balance before they are able to sell the property. If the tax lien does not attach to any property, the IRS may abate (remove) the lien.
For more information regarding your specific situation, contact Minneapolis Bankruptcy Attorney Gregory J. Wald at 952-921-5802 for a consultation.