Take Control of Your Tax Debt


Benjamin Franklin said there were only two things certain in life: death and taxes. After all, it was not murder or racketeering but rather, tax evasion, that ultimately led to Al Capone’s capture. There is no question tax debt can be a source of sleep deprivation for many. I find that I sleep better at night when I face my problems rather than let them run loose. If you owe the IRS, bankruptcy may help.

Some debts survive a bankruptcy filing. There are various factors that need to be considered in determining whether a tax liability is dischargeable in bankruptcy.

If your tax liability fits the following criteria, it will likely be dischargeable in bankruptcy: (1) the tax return must have been due at least three years before filing for bankruptcy relief; (2) the tax return for the tax debt you are seeking to eliminate must have been filed at least two years before filing for bankruptcy; (3) the tax debt is for income taxes and does not consist of payroll taxes or penalties based on fraud; (4) there was no fraud or willful evasion connected to the tax debt you are seeking to eliminate; and (5) the tax debt must not have been assessed by the IRS within the last 240 days before your bankruptcy is filed (“the 240-day rule”).

If your tax liability satisfies the above criteria, it will likely be discharged (eliminated) in bankruptcy. In a chapter 7 bankruptcy, it would generally be wiped out entirely if the factors are met and there are no other issues with your case.

However, although your personal liability on a dischargeable tax debt would be wiped out in bankruptcy, if the IRS had recorded a tax lien against your property prior to the bankruptcy filing, the tax lien would not be automatically extinguished. If there is a recorded lien, chapter 13 might be a better option as the debtor may be able to enter into and complete a payment plan of three to five years and, once completed, the lien should be released.

Chapter 13 cases are an adjustment of debt and include payment plans. If the tax liability in question is dischargeable, as explained above, it would be considered an unsecured debt. In chapter 13 cases, you may have to pay some or all of your unsecured debt (or in some cases, none of it). This would depend on whether you have disposable income and/or assets that are worth more than the protected amount (and how much). Due to the complexity of bankruptcy and potential discharge ability of tax liabilities, you should consult with a bankruptcy attorney in your area who would be able to assess your particular situation and advise which option would best suit your needs.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 1,800 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you.