Discharging Tax Debts in Chapter 7 Bankruptcy

Some bankruptcy petitioners see all of their debts discharged in Chapter 7 bankruptcy, while others still have a few lingering debts that weren’t dischargeable. The category that tax debts fall into depends on the specific situation. Bankruptcy regulations are complex. Talk to an attorney who exclusively handles these cases to receive the personalized legal guidance you need.

Income Taxes

It isn’t possible to eliminate payroll taxes or fraud penalties in Chapter 7 bankruptcy. But if you have past due income taxes, you’re in luck. Income taxes can be tricky to get caught up on because they accrue every quarter. You may still be paying off your income taxes from the previous year when the next past due notice arrives. Talk to a bankruptcy attorney before your past due taxes cause more problems for your finances.

Tax Returns

You’ll need to bring several years of tax returns to your meeting with your lawyer. Your income tax debts will only be dischargeable if the arrears were due at least three years before the date on the bankruptcy petition. This includes all valid time extensions. Depending on the particular court that handles your case, you might not be able to discharge tax debt from a late return.

Fraudulent Tax Returns

Chapter 7 bankruptcy can only discharge your tax debt if your returns are not found fraudulent or frivolous. Willful tax evaders do not qualify for a discharge. There is an exception for joint filers. To deny your discharge, it must be proven that both you and your spouse willfully evaded taxes or knowingly filed a fraudulent return.

Assessment Requirements

The date that the IRS or state assessed the tax against you cannot be within 240 days of the date of your bankruptcy petition. This time period is subject to lengthening if you’ve previously filed for bankruptcy or if there was an offer in compromise.

You can find out if Chapter 7 might be right for you when you consult a lawyer at Cutler & Associates, Ltd. We exclusively handle bankruptcy cases, so you can rest assured that you’ll receive quality guidance and effective representation. Call (847) 961-4572 to request a consult at our location in Aurora or Skokie.