Bankruptcy is known for eliminating a wide range of debt, such as credit card debt, medical bills, and more. Many people dealing with overwhelming tax debt turn to bankruptcy for help, only to find out that most tax debts can’t be wiped out in bankruptcy. Our Rancho Cucamonga tax attorneys explain which tax debts you can discharge through bankruptcy and what other options are available to help you become tax debt-free.
When Bankruptcy Can Discharge Tax Debt
If you want to discharge tax debt through bankruptcy, Chapter 7 might be able to help you. However, only a certain type of tax debt qualifies for discharge. Below is a list of all the conditions that must be met before discharging tax debt through bankruptcy:
- The taxes you own must be income taxes: Other taxes such as payroll taxes and fraud penalties cannot be eliminated through bankruptcy.
- The debt must be at least three years old: If your tax debt is less than three years old, it can’t be wiped out in bankruptcy.
- You filed a tax return: If you didn’t file a tax return in the last two years before filing for bankruptcy, you cannot discharge the tax.
- You pass the “240-day rule”: The IRS must assess the income tax debt at least 240 days before you file bankruptcy.
Other Ways to Get Rid of Tax Debt
Unfortunately, many individuals dealing with tax debt don’t meet the qualifications above to eliminate tax debt through bankruptcy. Others don’t want to go through the bankruptcy process when there are simpler methods of eliminating tax debt. Below is a list of all the different tax debt relief options available:
- Installment agreements: You can negotiate an installment agreement with the IRS to pay off your debt in monthly installments with up to ten percent interest applied to each year of debt.
- Offer in compromise: With an offer in compromise, you can negotiate your debt with the IRS to pay a lesser amount that will satisfy your outstanding debt. You can essentially pay a fraction of its value.
If you have overwhelming tax debt, contact our Rancho Cucamonga tax attorneys today to discover which tax debt relief option is best for you. Call us today at (909) 766-9996!