Understand Your Tax Obligations in Chapter 7 Bankruptcy
Jan. 20, 2017
Last week this Rockland bankruptcy and debt relief legal blog introduced the topic of the means test under Chapter 7 bankruptcy. This week it will explore a question many individuals have when they are considering whether bankruptcy will serve them: Will filing help me eliminate my owed back income taxes?
In some cases, the answer to this question will be yes. This outcome will be based on many factors that may be present in the debtor’s case. For example, only income taxes are dischargeable under Chapter 7 bankruptcy, and this includes only income taxes for which the debtor has filed a tax return. The failure of a debtor to follow proper Internal Revenue Service protocols for filing an annual income tax return may limit one’s ability to discharge their tax debts.
Additionally, a debtor must not have committed any crimes with regard to their taxes, such as fraud or evasion. The tax obligation that they want to discharge must have existed for at least three years before they file for bankruptcy. Other requirements also exist for a debtor to see their tax debts erased through Chapter 7 bankruptcy, and readers are asked to discuss those details with their attorneys as this blog post is offered as information only.
If a debtor is able to see their debts discharged, then they will likely also have any penalties assessed by the IRS discharged, too. The successful discharge of a tax debt ends the IRS’s right to seek payment on it; a person may experience a significant reduction in their outstanding financial obligations through the filing of Chapter 7 bankruptcy and the many protections it may offer.