Bankruptcy For The Purpose of Tax Relief

People file for personal bankruptcy for a number of reasons. If you are considering filing for either Chapter 7 or Chapter 13 personal bankruptcy, you are likely facing financial obligations greater than your income or ability to repay these debts. Chapter 7 bankruptcy allows a debtor to discharge, or eliminate, many of their consumer debts. Chapter 13 bankruptcy allows someone to create a repayment plan to repay all or part of their debts owed to their creditors. However, if the reason you are considering filing for bankruptcy is due to large tax debts, there are very specific circumstances under which you may discharge debts related to state or federal taxes.

Discharge of Tax Debt

In both forms of bankruptcy, there are  specific criteria you will need to meet in order to be able to discharge the tax debt including the following:

  • Your tax debt is greater than 3 years old.
  • Your tax debt relates to income taxes, not payroll taxes.
  • You filed a tax return within the last 2 years.
  • A tax assessment was completed over 240 days ago.
  • No evidence of tax evasion or tax fraud is present.

The Federal Bankruptcy Code at 11 U.S.C. Section 523 and 11 U.S.C. Section 507 clearly establishes the circumstances under which a tax debt may be discharged.  If any of these conditions are not met, then the tax debt may not be discharged, and it may not benefit a debtor to declare bankruptcy.   In any event, it is often necessary to file what is known as an ‘adversary proceeding’ to get a declaratory determination that taxes are discharged.

Settlement With The IRS

If you do not meet all of the above requirements, or if the only substantial debt that you owe is related to your taxes, then you may have other options other than bankruptcy. Oftentimes, the IRS will work with taxpayers to create either a compromise in terms of a settlement agreement or a repayment plan with respect to the taxes that are owed. The IRS will never guarantee that they will enter into any type of agreement with a taxpayer, but it may benefit you to visit with the IRS to see if they will work with you regarding your debt and before you decide to file for bankruptcy.

Contact an Experienced Bankruptcy Attorney Today

If you are planning on filing for bankruptcy due to your unpaid taxes, contact the experienced Jupiter & Palm Beach Gardens bankruptcy attorneys at the office of Julianne Frank, Esq. to help you examine your current financial situation and help you determine your next steps. Call our legal team at } for a free consultation today.


United States Code, 2006 Edition, Supplement 5, Title 11 - BANKRUPTCY

Debt and Bankruptcy