How bankruptcy may be able to help you with your overdue taxes

If you are struggling with tax debt, bankruptcy may be able to help.

With 2015 having just arrived, it will not be long until tax season will be upon us. Although this time of year is worrisome for many people, it is especially troublesome for those that are struggling with tax debt they cannot afford to pay. If you are in this situation, you may wonder whether bankruptcy could help you. The answer to this question depends on several factors.

Bankruptcy's treatment of tax debt

You may believe that bankruptcy would be able to quickly discharge your tax debt like other types of debt. However, in reality, tax debt is treated differently under the bankruptcy laws than other types of consumer debt. Each year's tax return is considered individually when determining whether it may be discharged. In general, tax debt may be discharged if it meets the following standards:

• The tax return must have been filed at least two years before the day you file bankruptcy. Problems can arise if the return is filed late.

• The IRS must have assessed the tax in question more than 240 days before you filed bankruptcy.

• The tax in question must have been due for at least three years. If you received any extensions from the IRS, three years must have elapsed since the extended due date.

• The tax return in question must not have been fraudulent. There must be no evidence that you attempted to defeat or evade taxes.

If your tax debt meets all of these standards, it is eligible to be discharged during bankruptcy. Once the debt is discharged, you are no longer under a legal obligation to repay it or any associated late payment penalties or interest.

However, any tax debt that does not meet these standards is ineligible for discharge and must be repaid. If you are in this situation, Chapter 7 bankruptcy may be able to help you in an indirect manner, especially if your tax debt represents a small percentage of your debt load. Chapter 7 can eliminate most other debts, such as credit card charges and medical bills. This can free up more of your income to devote towards paying your taxes.

However, if your tax debt is substantial, you may be better served by filing Chapter 13 instead. This type of bankruptcy allows you to include your delinquent tax debt into the repayment plan. Under the plan, you make monthly installment payments towards the debt over three to five years, which can make paying it back easy to accomplish. Wh ile you are repaying the debt, the IRS cannot garnish your wages or institute any other collection action against you.

Speak with an attorney

If you find yourself struggling with tax debt, bankruptcy may or may not be the ideal solution for you. To learn about all of your options, speak with an attorney. The Law Office of Lauren Clark, L.L.C. can outline possible solutions available to you and recommend one that would best fit your unique situation.