Did you skip paying your taxes for several or more years? Regardless of whether you’re an employee or a self-employed business owner, it’s easy to fall into a difficult financial circumstance that prevents you from paying your tax bill. Tax obligations like this can really add up over the years, and before you know it, your tax debt can become unaffordable.

Let’s take a look at whether you can use Chapter 7 or Chapter 13 bankruptcy as a solution to your tax woes.

Resolving tax burdens through Bankruptcy

Unfortunately, in most cases, you’ll still be liable for your tax burden following bankruptcy. In select cases, however, bankruptcy proceedings will resolve your tax debts — especially with Chapter 7 bankruptcy. If you can qualify for Chapter 7, you’ll have a better chance of dissolving your tax debt. Also, any penalties associated with dischargeable tax debt can be discharged.

Here are the general qualifications for discharging tax debt under Chapter 7 bankruptcy:

  • The discharge relates to income taxes and doesn’t relate to payroll tax or IRS fraud penalties.
  • The bankruptcy filer has filed tax returns for all the relevant years.
  • The tax liabilities are three or more years old.
  • The IRS has determined the tax debt a minimum of 240 days prior to the bankruptcy filing.
  • The debtor did not willfully evade his or her taxes. For example, the debtor didn’t attempt to change his or her social security number, the spelling of his or her name or his or her name. The debtor did not repeatedly fail to pay his or her taxes. The debtor did not file incomplete or blank tax returns. The debtor did not try to withdraw cash from his or her bank account and hide it.
  • The tax returns don’t have any information intended to defraud the Internal Revenue Service.

Do you think you can qualify?

Just because you don’t seem to satisfy all of the above qualifications doesn’t mean that you can’t qualify to dissolve tax debts through bankruptcy. A detailed understanding of bankruptcy and tax laws will help you analyze whether or not bankruptcy is the correct path for you.

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