Debt is much on the minds of all Americans – Texans included. It isn’t just the national debt, either. Many local governments also have problems with municipal debt. And of course, if you’re reading this post, you may be in need of personal debt relief.
If you owe back taxes to the IRS or the Texas Department of Revenue, it is fair to ask whether it might be possible to discharge a tax debt in Chapter 7 bankruptcy. Keep in mind, first of all, that business taxes are generally not dischargeable.
For personal taxes, the answer will depend on several factors. For IRS tax debt, the questions you should ask include:
• Have three years passed since the taxes should have been filed?
• Have 270 days passed since the taxes were assessed against you?
• If you did file tax returns, have two years passed since they were filed?
Even if a tax debt turns out to be not dischargeable in Chapter 7, it still may be possible to obtain debt relief by filing Chapter 13 bankruptcy. One advantage to doing this may be the ability to suspend any tax penalties you are facing.
There is, however, one big limitation to a Chapter 13 strategy for dealing with tax debt. In Chapter 13, all of the tax debt must be paid in full over the course of the payment plan worked out with the bankruptcy court. So you decision on whether to pursue a Chapter 13 bankruptcy may depend on the overall size of your tax debt.
Meanwhile, governments big and small are struggling with their own debts. At the federal level, the talk of the “fiscal cliff” has become a daily staple, and is likely to remain so until there is some form of resolution.
At the local level, there is a good example here in Texas of a municipality that has taken effective action to overcome its struggles with debt. Tyler, Texas, committed to a comprehensive debt reduction approach that has worked well for the city. Perhaps it is even possible that the federal government could do the same.
Source: “Will Choice or Necessity Reduce Exploding Municipal Debt,” Forbes, Mark McDaniel, 11-14-12
Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our IRS tax levies page.