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How can including my tax debt in bankruptcy benefit me?

It’s that time of year again…… time. For some, it is the happy time where large refunds are received and the influx of money is used to make large purchases, or to get caught up on delinquent bills. But for others, tax time is the most dreaded time of the year. Penalties, interest, and the threat of IRS collection action can be a daunting challenge. How can bankruptcy help you deal with your tax debt?

The most important advice I can give to anyone who is concerned about the possibility that they will owe taxes is to FILE THE RETURNS! Your tax debt is never going to go away, and by not filing a timely return you face additional penalties, and even the possibility of criminal charges. Additionally, the clock cannot start ticking on the ability to discharge taxes you owe in bankruptcy until the tax returns are actually filed. In a Chapter 7 bankruptcy, generally the rule of thumb is known as the 3/2/240 rule. With some exceptions, 3 years must have elapsed between the time the liability became due and the bankruptcy filing. The tax returns must have been filed more than 2 years prior to the bankruptcy filing, and at least 240 days must have elapsed between the time the IRS accessed the tax, and the bankruptcy being filed. Keep in mind, this only applies to the dischargeability of taxes in Chapter 7.

For more recent taxes, or those that do not otherwise qualify for discharge in a Chapter 7, a Chapter 13 reorganization bankruptcy can be a very effective way to eliminate your tax debt. In Chapter 13, taxes are paid according to an order of priority which is established under the Bankruptcy Code. It is more important than ever to seek the advice of an experience bankruptcy lawyer to determine your rights under Chapter 13 and how the repayment of your taxes would work. By filing a Chapter 13 bankruptcy, you could avoid many of the pitfalls of carrying a large tax debt, including the possibility that the IRS could place liens against your property, or garnish your wages.

At The Law Offices of Adam M. Freiman, P.C. we have been practicing bankruptcy law for over 25 years, have handled almost 10,000 successful bankruptcies, and have discharged over $100,000,000 in debt. Contact us today to discuss your tax debt and how bankruptcy can help you.


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