There have been several tax reforms in 2019 and a lot of changes can be seen in the form of increased tax rates. Are you wondering what will happen to your taxes after bankruptcy. Due to changes in tax laws, you may be interested to know how your tax payments and returns will be affected during bankruptcy. So, let’s find out the answers.
When you file for bankruptcy, the court may help you to pay off pending debts. One of your debts may be taxes. Although, bankruptcy stops the IRS from collecting taxes for the time being. But you still have to pay them during or at the end of a bankruptcy period. This is because tax debts are considered a priority by bankruptcy courts.
However, there are some type of tax debts which can be eliminated (wiped out) when they fulfill certain criteria. Note that this statement holds true for Chapter 7 bankruptcy only.
Five Rules to Discharge Tax Debt in Chapter 7 Bankruptcy
As a citizen of Denver, Colorado, the state laws allow you to discharge tax debt in the following conditions;
- The tax in question should be Income tax: Only income tax is eligible to be discharged while payroll, corporate taxes, and other penalties will still be owed.
- Your tax debt should be three years old: Your tax debt must be past due by at least 3 years before you apply for bankruptcy.
- No fraudulent claims: You will not be able to get tax debt elimination, if found guilty of filing a fraudulent tax return. Bankruptcy will also not help you if you used any means to evade tax collection.
- Filing the tax return in the past years is also mandatory: As a taxpayer you must have filed a tax return at least two years ago to get a debt discharge.
- The rule of 240-days: It is also important that the IRS had assessed your tax debt 240 days prior to filing for bankruptcy.
Above are very specific rules that enable a taxpayer to possibly discharge (wipe out) tax debt after bankruptcy. However, it does not hold true in the case of a tax lien.
A Tax Lien Cannot Be Discharged
While you may qualify for income tax elimination, a federal tax lien on any property you own cannot be wiped out. If the IRS has placed any lien on your property you’ll still be responsible for it after bankruptcy. Also, the resale of your property will only be possible after you pay back your tax lien.
If you’re finding it hard to manage the pressure that comes with filing bankruptcy please consult me for best legal advice. Book an appointment now and I will find the best possible solution for your bankruptcy issues.