Bankruptcy Can Eliminate Tax Debt 

Not all tax debts are capable of being discharged in bankruptcy. The bankruptcy petitioner (also known as “debtors”)  must have tax debts that meet five criteria for discharge.

Tax debts are associated with a particular tax return and tax year. The bankruptcy law lays out specific criteria for how old a tax debt should be.

Five Rules to Discharge Tax Debts

If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.

1. The due date for filing a tax return is at least three years prior to filing bankruptcy.

2. The tax return was filed at least two years prior to filing bankruptcy.

3. The tax assessment is at least 240 days old.

4. The tax return was not fraudulent.

5. The taxpayer is not guilty of tax evasion.

However, if you owe taxes for any year that are not considered dischargeable then they can be paid through a Chapter 13 payment plan without accruing additional interest and/or penalties. Many people who owe back taxes work out payment plans directly with the IRS or California State Franchise Board. However, the problem with this approach is that they are still accruing interest on the balance still owed which increases the overall amount owed. By filing bankruptcy the interest stops accruing at the time the case is filed which saves money over the long-term.

Contact Jeremy Peck for a free consultation and to discuss freeing yourself of back taxes at (831) 224-3199 or send an email!

Jeremy Peck serves residents of Monterey, Santa Cruz, and San Benito Counties helping them with their debts problems.