Bankruptcy is a legal process that helps individuals eliminate or repay their debts under the protection of a federal court. There are two primary types of bankruptcy for individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy involves liquidating assets to pay off debts, white Chapter 13 involves creating a repayment plan to pay off debts over a period of three to five years.
Tax debt can be a significant portion of an individual’s debt load. When it comes to bankruptcy, not all tax debt is treated equally. Some tax debt may be dischargeable, while others may not be. The discharge of tax debt in bankruptcy depends on several factors, including tax debt, the age of tax debt, and the type of bankruptcy that is filed.
Certain types of tax debt may be dischargeable in bankruptcy. Generally, tax debt that is eligible for discharge must meet the following criteria:
- The tax debt must be income tax debt. This means that other types of tax debt, such as payroll taxes or fraud penalties, are generally not dischargeable in bankruptcy.
- The tax debt must be at least three years old. This means that the tax debt must have been due at least three years before the bankruptcy filing date.
- The tax return for the tax debt must have been filed at least two years before the bankruptcy filing date.
- The tax debt must have not been assessed by the IRS less than 240 days before the filing date.
If tax debt meets all of the above criteria, it may be eligible to discharge in bankruptcy.
It is important to note that filing for bankruptcy does not necessarily mean that a debtor will never have to pay back tax debt. Depending on the circumstances, tax debt may not be dischargeable in bankruptcy or may be subject to repayment through a Chapter 13 plan.
Tax debt and bankruptcy can be complicated areas of law, and the treatment of tax debt in bankruptcy can depend on several factors.
If any questions, feel free to reach out to your Modesto bankruptcy attorney at 209-438-4990