There are many types of debt. When health problems occur, even people with good insurance can find themselves in medical debt. And in this challenging economy, problems with credit card debt and mortgage debt are very common.
And then there’s tax debt. If you owe money to the IRS or the Texas Department of Revenue, you need to have a strategy for how to defend yourself against collection attempts.
Quite naturally, then, you might be wondering what effect a bankruptcy filing might have on your tax debt. Here are some basic factors to keep in mind.
First of all, it’s important to make the distinction between personal income taxes and business taxes. Personal tax debt may be dischargeable in bankruptcy, but business taxes are not.
For personal tax debt, the viability of using bankruptcy depends on the amount of time that has passed since the taxes became due. In general, tax debt cannot be discharged in bankruptcy until three years have elapsed since the taxes should have been paid. In addition, 270 days must have elapsed since the assessment of the taxes.
Keep in mind, too, that even if a tax debt is not dischargeable in a Chapter 7 bankruptcy, another possibility for addressing it may be Chapter 13.
To be sure, a Chapter 13 bankruptcy requires coming up with a payment plan. But there may be some advantages to it, such as being able to suspend tax penalties.
If your tax debt is non-dischargeable, as is the case with business debt, a Chapter 13 filing may be in order. This is a subject worth discussing with an experienced bankruptcy attorney, to decide what’s best for you.
•· Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our IRS tax levies page.