Bankruptcy and the IRS
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Bankruptcy and the IRS

Bankruptcy is a remarkably versatile debt reduction tool. Many filers have been able to discharge common debts such as credit card debt, medical bills, payday loans, and utility bills by filing personal bankruptcy.

While many tax debts cannot be discharged through bankruptcy, some taxes owed to the IRS may be eligible. While tax debt is not as common as other forms on unsecured it, bankruptcy may offer relief.

Perhaps unsurprisingly, though, the elimination of taxes through bankruptcy can be a complex process that depends on a number of variables. To learn more about discharging tax debts, fill out the form below to arrange a free, no-obligation consultation with a bankruptcy attorney.

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How Could Bankruptcy Affect Tax Debt?

One of the strongest initial advantages that bankruptcy offers to debtors seeking to reduce the money they owe to the IRS is the automatic stay. Here's how the automatic stay works:

  • When you file for bankruptcy, the court issues a court order called the automatic stay against your creditors.
  • As a result of this automatic stay, your creditors must stop trying to collect debts from you.
  • So, just like any other creditor, the IRS must stop collection actions against you after you file for bankruptcy.

While this automatic stay may be lifted in rare situations, it can give you breathing room to focus on your case and your financial future without being harassed by creditors.

In addition to the temporary respite offered by the automatic stay, there are other elements that will determine whether the IRS's claim against you will last after your bankruptcy is complete.

Eliminating IRS Debts Through Bankruptcy

In order to fully discharge tax debts through personal bankruptcy, several requirements must be met, including:

  • You are only attempting to discharge income taxes. Payroll taxes and fraud penalties cannot be discharged through bankruptcy.
  • You must have filed a valid tax return.
  • The tax liability must be more than three years old.
  • You did not willfully evade paying your taxes and you did not commit tax fraud.

If you meet all these requirements in addition to others not listed here, you may be able to discharge some of your IRS tax debts in personal bankruptcy.

Some people are able to eliminate tax debts through personal bankruptcy, but this is not always the case. Among other things, it depends on whether you intent to file Chapter 7 or Chapter 13 bankruptcy.

Through Chapter 7 bankruptcy, a filer may be able to discharge some or all of their unsecured debts, which may sometimes include federal tax debt.

On the other hand, in Chapter 13 bankruptcy, tax debts are simply included in a restructured debt payment plan.

Which Chapter Might Help Your Tax Obligation? Ask an Attorney

To learn more about bankruptcy and the IRS, and your ability to discharge tax debts, connect with a local bankruptcy lawyer today.

Use the free case review form on this page to connect with an attorney in your area for a free, no-obligation bankruptcy consultation.

Free Case Evaluation

Laws may have changed since our last update. This is for informational purposes only and is not legal advice. For legal advice on your particular situation, talk to a local bankruptcy attorney.

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