Resolving tax debts through bankruptcy

On Behalf of | Sep 29, 2017 | Chapter 7 |

As this blog has reported previously, a Chapter 7 bankruptcy, which most people think of when they think of filing for bankruptcy, is a good way for a Tennessee family who are struggling with different kinds of debt to get a fresh financial start

Contrary to popular belief, a Bradley County resident actually can discharge some, but not all, types of tax debt in the course of a bankruptcy, even though taxes are considered priority debts that get paid first during a bankruptcy proceeding.

However, it is important for Tennesseans to realize that there are several provisions and exceptions in place with respect to getting taxes, especially federal income taxes, discharged in a bankruptcy. For one, the person asking for discharged has to have filed a tax return, and that tax return has to be reasonably accurate. Non-filers or those actively trying to avoid paying their taxes, as opposed to just being unable to pay, will not get the benefit of a bankruptcy discharge.

Less obviously, the law gives the iRS at least a little time to try to collect the back income taxes or work out a deal with debtor. A debtor can only file bankruptcy if the taxes were actually due three years or more before the day he or she chooses to file for bankruptcy. Moreover, The IRS gets about 8 months, or 240 days, to actually levy and pursue collection. Finally, it is important to remember that while Chapter 7 can stop things like garnishments, tax liens against one’s property do not get discharged.

While some tax debts can be discharged in a bankruptcy under certain circumstances, there are some legal complications to doing so which may be best discussed with an experienced bankruptcy attorney.


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