Bankruptcy, or the prospect of bankruptcy, is a cause for concern for many individuals who are having financial problems. Besides being one of the most drastic and financially damaging steps that you can take as an individual, bankruptcy may also not solve all of your financial problems, so you will want to be sure that it is the best choice for your situation before you begin the process. One specific area of concern that many people have is whether bankruptcy will allow them to write off their back taxes or other debts to the Internal Revenue Service. There are a number of qualifiers that must be met before bankruptcy will solve a back tax obligation.
Understanding Bankruptcy and Tax Debt
- One qualification that must be met for a back tax obligation to be discharged through bankruptcy is that the tax debt due date, including all of its extensions, must be at least three years old.
Newer tax debts, such as last year’s late taxes, will not be forgiven in a bankruptcy proceeding, so you will need to make a plan to pay back any tax debts that are younger than three years old as a part of your bankruptcy settlement. In addition, you will not be able to discharge a tax debt unless you filed the tax return that debt was due on at least two years prior to filing for bankruptcy.
- Another qualification that must be met in order to discharge a back tax debt is that the tax debt cannot be fraudulent and the return cannot be an attempt at tax evasion.
You also cannot forgive tax debts that you never filed a return for, so if you did not follow the proper procedures to report and claim your income taxes, any debts or penalties assessed by the IRS on that tax debt will not be dischargeable during your bankruptcy proceedings.
- Finally, you must be able to prove that you have filed your past four years’ tax returns prior to even being able to declare bankruptcy.
Proving that you have filed your previous four tax returns is a prerequisite for either Chapter 7 or Chapter 13 bankruptcy. If you find that you have missed a tax return, you will want to file as quickly as possible to set up an amended return and have the tax return counted before you begin your bankruptcy proceedings.
Getting Help
Having tax debt forgiven during bankruptcy is not impossible, but it is difficult and you must follow the steps exactly in order to be successful. The help of an experienced bankruptcy attorney can also go a long way towards getting your back taxes forgiven or discharged in bankruptcy.
