It’s no secret that going into debt is one of the most stressful life events a person can experience. But for most types of debt, there is a solution. Many creditors, such as credit card companies and medical facilities, will be happy to set up a payment plan for you to ensure your debt is paid off. Some hospitals even have funds available for those who cannot pay their medical bills. You may also be able to pay off unsecured debt through bankruptcy. However, when it comes to tax debt, the federal government can be a little more difficult to work with, and tax debt cannot be repaid through bankruptcy. There are always exceptions, and a Bankruptcy Attorney can help you work with the government to manage your tax debt.
How is Tax Debt Handled?
While you may not be able to pay off your tax debt through Chapter 13, the amount you owe will be taken into account when we design your payment plan. You may be able to waive your tax returns when you file for Chapter 7, but only if you meet the following five criteria:
1. Generally, only income tax may (or may not) be included in bankruptcy; all other types of taxes are generally excluded.
2. You must not enter your tax payable if you have committed tax fraud or intentionally avoided paying taxes. In this situation, you will also face other legal consequences.
3. Your tax debt must be at least three years old from the date of your bankruptcy filing.
4. You must file a tax return for the year in which you owe taxes at least two years before filing for bankruptcy.
5. You must meet the “240-day rule,” which means taxes must be unassessed or assessed at least 240 days before filing for bankruptcy.
If you fall far enough behind your taxes, the IRS can issue a tax lien on your property. In this situation, you may be able to include taxes in your bankruptcy, but this does not apply to your liens. You’ll still owe the lien amount, but the IRS can’t garnish your wages or control your bank account to collect the debt. To secure a lien, you may need to sell your property and repay the debt, negotiate a payment plan, or even negotiate a settlement for a lower lump sum amount. This can be tedious and stressful, but it may be worth the effort.
Professional Guidance
If you’ve received notices from the government, particularly regarding tax debts and liens, it’s important to act quickly. It’s intimidating to deal with government agencies, especially when it comes to money. A Bankruptcy Attorney can offer professional advice so you can confidently move forward and take control of your situation.