This Wednesday is Tax Day, and if you are dreading another year that you are unable to afford the taxes that you owe, there are several options available to you, so don’t panic.
As the IRS explains on its website, people who cannot afford to pay past due federal income taxes have a variety of options that they should consider, including bankruptcy.
People struggling with tax debt and other forms of debt may choose one of two bankruptcy options: Chapter 7, which involves liquidation of some of your assets and then a discharge of your debts; or Chapter 13, which involves creating a payment plan to repay part or all of the debts you owe over three to five years.
If you are leaning toward a Chapter 7 bankruptcy to have your tax debt forgiven, you should know that most tax debts cannot be forgiven in bankruptcy; however, there are some that can be when certain conditions are met.
In order for tax debt to be dischargeable in bankruptcy, you:
- Must have tax debt made up of income taxes (not payroll taxes or tax penalties);
- Must have tax debt that is at least three years old;
- Must not have committed tax fraud or evasion;
- Must have filed a tax return for at least two years before filing for bankruptcy protection; and
- Your income tax debt must have been assessed by the IRS at least 240 days before filing for bankruptcy protection.
If you think that Chapter 13 might be the better option for you, consider the following requirements:
- You must file tax returns for all tax periods within the four years leading up to your bankruptcy filing.
- You must continue to file tax returns during your bankruptcy process, or get an extension from the IRS.
- You must pay all taxes that you are assessed when they come due during the bankruptcy process.
Failing to file your tax return or pay your taxes during the bankruptcy process could put a stop to your bankruptcy case.
If bankruptcy doesn’t seem like the right option for you, there are a couple of alternative ways to deal with tax debt that you cannot afford to pay back, including an IRS payment plan or an Offer in Compromise.
Talk to an experienced bankruptcy lawyer in your area for help choosing the right option for you.