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Castle Law Office

Q
Can Filing Chapter 7 Bankruptcy Help with Income Tax Debt?

A

If you're behind on income taxes, Chapter 7 bankruptcy could be a solution. Income tax can be discharged through bankruptcy, which means the debt can be completely forgiven. However, there are some specific rules surrounding income tax debt and bankruptcy:

The tax return needs to have been due at least 3 years ago.

You have to have filed the tax return at least two years ago.

The taxing authority also has to have assessed your taxes at least 240 days before you file bankruptcy. This usually happens close to the time you filed your tax return; but it can be delayed if you filed any corrections or have been audited.

The tax debt can't be fraud or purposeful tax evasion.

A few other things to keep in mind:

These rules also include interest and penalties related to income tax. Interest and penalties are fully dischargeable if the income tax debt is dischargeable.

The rules do not include tax liens or other non-income taxes — like property taxes, for example. But that doesn't mean you can't deal with those tax debts. If you owe other kinds of back taxes, you may want to consider a Chapter 13 bankruptcy.

Castle Law Office has been handling bankruptcies for Kansas City clients from more than 14 years. If you need the fresh start bankruptcy can provide, call us today at 816-842-6200 to speak with an attorney. Or click here to email us and schedule your free consultation.

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