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Will Bankruptcy Help Me With My Past Due Taxes?


It depends. The general rule of thumb is tax debt is nondischargeable. You will have to pay it unless three things are true for you: number one, that the tax debt became due more than three years ago; number two, you filed that tax return more than two years ago; and, number three, any assessment made by the IRS was more than 240 days ago. If those three things exist, your tax debt is eligible for discharge. We can discuss that in much more detail at a free consultation.

If you have tax debt that is due, I would like to see the tax returns. I'd like to know when those returns were filed. And, if you are receiving notices from the IRS, bring those to me because more likely than not if they've made an assessment, that assessment date is on the notice and I will be able to give you a good prediction as to whether or not that tax debt is dischargeable.

If it turns out that your tax debt is nondischargeable, there still may be a really big advantage for you in filing bankruptcy if we file a Chapter 13 bankruptcy. Let's say you owe the IRS $50,000 in past due tax debt. That tax debt is comprised of three things: the tax itself; the interest that's accrued on that tax debt; and a penalty. If we file a Chapter 13 bankruptcy for you, the penalty comes right off the top; it just gets eliminated in Chapter 13 bankruptcy. The other thing that happens in Chapter 13 is you will be able to repay that tax debt interest-free. Outside of bankruptcy, if you enter into an installment contract with the IRS and you pay them X amount of dollars per month, you're paying interest. In Chapter 13, every dollar that goes to the IRS is a dollar that reduces your overall tax debt and you are paying that tax debt off interest-free. Lots of people will use Chapter 13 just for that reason.

April 08, 2013 12:30 am