It’s no secret that being in debt is one of the most stressful life events one can experience. But for most types of debt, there are solutions. Many creditors, such as credit card companies and medical facilities, will be happy to set up payment plans for you to ensure your debt is taken care of. Some hospitals even have funds available for those who cannot pay their medical bills. You can also discharge unsecured debt through bankruptcy. However, when it comes to tax debt, the federal government can be a bit more difficult to work with, and tax debts cannot be discharged through bankruptcy. There are always exceptions, and a bankruptcy attorney can help you work with the government to take care of your tax debts.
How are tax debts handled?
While you may not be able to discharge your tax debts through Chapter 13, the amount you owe will be taken into account when designing your payment plan. You may be able to discharge back taxes when you file a Chapter 7, but only if you meet these five criteria:
1. Generally, only income taxes may (or may not) be included in a bankruptcy; all other types of taxes are generally excluded.
2. You can’t include your tax debt if you committed tax fraud or intentionally evaded paying taxes. In these situations, you will also face other legal consequences.
3. Your tax debt must be at least three years old from the date you filed your bankruptcy filing.
4. You must have filed a tax return for the year you owe taxes at least two years before filing for bankruptcy.
5. You will need to meet the “240 day rule,” which means that taxes are not yet assessed or have been assessed at least 240 days before you file for bankruptcy.
If you fall far enough behind on your taxes, the IRS can issue a tax lien against your property. In these situations, you may be able to include the taxes in your bankruptcy, but this would not apply to your lien. You will still owe the amount of the lien, but the IRS cannot garnish your wages or take control of your bank accounts to collect the debt. To take over the lien, you may need to sell your property and pay off the debt, negotiate a payment plan, or even negotiate a lower lump sum settlement. This can be tedious and stressful, but it can be worth the effort on your part.
Professional orientation
If you have received notices from the government, especially related to tax debts and liens, it is important that you act quickly. It can be intimidating dealing with government agencies, especially when it comes to money. A bankruptcy attorney can offer professional advice so you can move forward with confidence and take control of your situation.