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Some people who file for Chapter 7 bankruptcy fail to take full advantage of its ability to discharge debt. For instance, you may not be aware that you can get your tax debt wiped out under Chapter 7. In truth, Chapter 7 can discharge some types of tax debt provided that they satisfy certain requirements. This effectively releases you from personal tax liability.
When declaring bankruptcy in Raleigh, be sure to always consult with Weik Law Office beforehand. With their help, you can make sure that you meet the following conditions.
Strictly Income Based Taxes
To qualify, your tax debt must first and foremost be income based. More specifically, they should be for federal or state income taxes or taxes on gross receipts. That means payroll taxes, fraud penalties and others that are similar can never be discharged.
Return Filed at Least 2 Years
You also must have filed the tax return for the debt you wish to get discharged at least two years before declaring bankruptcy. Be warned- that most courts may not count a late return as a “return” at all. Having a late return means that your extensions have expired and the IRS has already filed a substitute return on your behalf. As a result, your tax debt cannot be wiped out.
Tax Debt at Least 3 Years Old
Prior to declaring bankruptcy, your tax debt must have been due at least three years ago. This condition also applies to all extensions.
Assessed at Least 240 Days Ago
There is also a 240-day rule that must be observed regarding tax assessment. The IRS should have already assessed your tax debt for 240 days before you file a Chapter 7 bankruptcy petition. Although, this time limit can be extended if the IRS ceased collection activity due to previous bankruptcy filing or an offer in compromise.
No Fraud or Willful Evasion Records
Lastly, the tax debt to be discharged must not have been involved in fraudulent or frivolous activities. You must also not be guilty of any intentional act of evading tax laws, such as using a false Social Security number on a tax return. For married couples that file joint returns, the IRS must confirm that both you and your spouse did not commit in any illegal acts to get the tax debt discharged.
Take filing for a Chapter 7 bankruptcy as an opportunity to get a fresh start. While not all tax debt can be eliminated through this petition, you can at least lighten the load with our assistance at Weik Law Office. Call us today at 919-845-7877 for a free consultation, and set up a time to speak with one of our professionals.
Sources:
Chapter 7 Bankruptcy – Liquidation Under the Bankruptcy Code, IRS.gov