Filing a bankruptcy case can eliminate most, if not all, your unsecured debts. However, some debts may not be eligible for a discharge in either a Chapter 7 or Chapter 13 bankruptcy case. The good news is that you may be able to discharge some personal income tax debt in a bankruptcy case. Whether you can discharge tax debt depends on several factors. Talk to an experienced bankruptcy lawyer to discuss your specific situation.
Personal Income Tax Debt And The 3-2-240 Rule
Filing a Chapter 7 or Chapter 13 bankruptcy case might get rid of your tax debt if you satisfy all requirements under the 3-2-240 Rule.
This rule is not an official bankruptcy rule or law. It’s simply a way to remember the requirements for discharging tax debt in bankruptcy. To determine if your tax debt is eligible for a discharge, we will examine the debt to determine if it meets all three of the following criteria:
- The personal income taxes owed must be more than three years old at the time you file your bankruptcy petition;
- The tax return that resulted in the tax liability must have been filed at least two years before you file your bankruptcy petition; and,
- The tax debt has to be assessed by the IRS at least 240 days before the bankruptcy case is filed.
If your situation meets all the above criteria, you might be able to eliminate tax debt in bankruptcy. However, there could be situations and factors that impact the above criteria. For example, if you received extensions to file your tax returns, the exact date that you might be able to get rid of that tax debt might be extended as well. Individuals who willfully evade tax debt or committed fraud when filing their tax returns will not be able to discharge personal income tax debt.
An experienced Georgia bankruptcy attorney can review your situation to determine if you can eliminate tax debt in bankruptcy.
WHAT HAPPENS TO TAX DEBT THAT IS NOT DISCHARGEABLE?
If your tax debt is not eligible for a discharge, the tax debt survives a Chapter 7 bankruptcy case. In other words, you must pay the tax debt after your bankruptcy case is closed. However, the IRS has several options for installment plans that can make the tax debt affordable once you get rid of all the rest of your unsecured debt.
In a Chapter 13 bankruptcy case, tax debt is treated as priority unsecured debts. Priority unsecured debts must be paid in full through the Chapter 13 case. Chapter 13 bankruptcy payments typically span three to five years. Therefore, you can spread out the tax debt over the life of the bankruptcy plan to get rid of tax debt.
The other benefit of paying the tax debt through a Chapter 13 plan is that the tax debt has priority over other unsecured debt, such as credit cards, medical bills, and personal loans. You can get rid of all your tax debt by paying it in full through the Chapter 13 plan while getting rid of general unsecured debt for a small fracture of the amount you owe to unsecured creditors.
CONTACT A GEORGIA BANKRUPTCY ATTORNEY FOR MORE INFORMATION
Dealing with tax debt in a bankruptcy case can be tricky. Determining whether you can eliminate tax debt may involve several factors. Schedule a consult with an experienced Georgia bankruptcy attorney to determine your options for getting rid of tax debt you cannot afford to pay.