The coming new year means another year of federal income taxes that are due. If you are unable to pay your taxes, the IRS can be a troublesome debt collector. The IRS can send you a levy notice when it believes you are neglecting or refusing to pay your taxes. You have 30 days to respond and contest the levy, otherwise the IRS can start seizing your property and garnishing your wages. Filing for bankruptcy can put a hold on the levy and give you additional means to repay your debt. In some instances, you may be able to discharge part of your tax debt. However, the IRS has guidelines for clearing debts by using chapter 7 or chapter 13 bankruptcy.
Chapter 7 bankruptcy involves selling off non-exempt assets and using the money to repay creditors. The advantage when filing for Chapter 7 bankruptcy is the possibility of discharging your income tax debt. Your debt may be eligible for discharge if:
- The debt was from a return that was due at least three years before you filed for bankruptcy;
- You filed the tax return for the debt at least two years before you filed for bankruptcy;
- The IRS assessed the income tax debt at least 240 days before you filed for bankruptcy; and
- You did not willfully evade or defraud the IRS.
Tax debts that do not meet these requirements are still owed.
As part of Chapter 13 bankruptcy, you will agree to a repayment plan for your income tax debt. However, it is rare that you will be able to discharge any of the debt. You need to have filed your tax returns for the past four years in order to qualify for chapter 13 bankruptcy. Additionally, the IRS may try to dismiss your bankruptcy case if you do not:
- Continue to file or get an extension to file your tax returns; and
- Pay your new income taxes as they come due.
IRS and Bankruptcy
The IRS is different from typical creditors in that it does not need to file a lawsuit in order to start levying your assets. Filing for bankruptcy can at least halt its efforts and buy you time to figure out how to repay the debt. Contact a Frisco, Texas, bankruptcy attorney at The Page Law Firm to learn if bankruptcy can help you with your income tax debt. Schedule a free consultation by calling 214-618-2101.