Bankruptcy, and especially Chapter 7 bankruptcy, offers a fresh start for those who have racked up insurmountable debt. Though debtors may be vulnerable to some of their assets being liquidated, the filing can wipe away unpaid medical bills and credit card bills and allow the possibility of moving forward without the burden of debt collectors and past-due notices. The same is true for tax debt, but only in certain circumstances. Here’s what you need to know about how bankruptcy will affect your tax debt.

The first thing – which is often the most important to taxpayers – is that once you have filed for bankruptcy you will no longer be on the receiving end of IRS collection efforts. Just as is true with other agencies, once you have filed your bankruptcy paperwork the automatic stay will put an end to the notices that you have been receiving.

Not all tax debt can be eradicated through a bankruptcy filing. If you have unpaid property taxes or trust fund taxes, you will continue to be responsible for them. However, your personal income taxes can be erased if they meet certain criteria.

The most important qualifier for having tax debt erased is having been diligent about filing your income taxes over the previous two years and the tax debt being at least two years old. Returns that the IRS filed on your behalf do not meet this requirement. The debt must be a minimum of three years old in order to be discharged through bankruptcy, but the assessment from the IRS cannot be older than eight months old.

If you do not meet these requirements and you have outstanding tax debt that you are unable to pay, you still have options available to you. The IRS will allow taxpayers who are unable to meet their tax obligations to set up a payment plan or installment agreement, and in some cases, they will even compromise in the amount that the individual is responsible for based upon their unique circumstances. The most important thing for you to know is that the longer you wait to explore your options, the more challenging your position becomes.

To learn more about the best way for you to move forward in the face of tax debt, contact our experienced bankruptcy attorneys. We are here to help.

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