Many people mistakenly believe that tax debt and other tax liens are not dischargeable in bankruptcy. This is a complete misconception (and one that the Internal Revenue Service probably enjoys perpetuating). When it comes to getting tax debt relief through bankruptcy, there are a myriad of technical rules and regulations that must be followed, but if you comply with the letter of the law, there is a good chance your tax debt could be dischargeable via bankruptcy.
Type of Bankruptcy
As you may be aware, there are different bankruptcy proceedings that may be pursued, depending on your particular situation. There is Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 bankruptcy. Nevertheless, many individuals will likely opt for Chapter 7 bankruptcy since that is the chapter focused on individual debtors.
Chapter 7 Bankruptcy
As a general rule, both federal and state tax debt may potentially be discharged via bankruptcy, depending on the age of the debt. When it comes to income tax debt, they could potentially be discharged through Chapter 7 bankruptcy, but only if the tax debt meets the following criteria:
- The tax debt is more than three years old;
- A tax return was filed more than two years prior to the filing of the bankruptcy petition;
- The tax was assessed more than 240 days prior to the filing of the bankruptcy petition;
- The tax debt is not based upon a fraudulent tax return;
- The tax debt is not based upon you, the taxpayer, attempting to evade payment of the tax;
- The tax was not assessable at the time of the filing of the bankruptcy petition; and
- The tax was unsecured.
Immunity from Bankruptcy
Unfortunately, not all taxes are dischargeable through bankruptcy. In fact, taxes secured by a federal tax lien are not dischargeable via bankruptcy. In most instances, a federal tax lien arises upon the assessment of the tax. For the purposes of bankruptcy, however, a tax is not considered to be secured unless a valid, verifiable federal tax lien was filed by the IRS prior to you filing for bankruptcy.
In order for a federal lien to be valid, the IRS must file the lien with the appropriate state office in accordance with state law. It is also important to note that a federal tax lien attaches to all property and rights to property of the taxpayer. As a result, there is a good chance that at least some portion of your debt to the IRS is subject to a secured lien. In many cases, however, only a portion of the tax is secured because the liability exceeds that value of the property.
Have Questions? Learn More About Tax Debt Relief by Contacting Anderson Bradshaw Today
Navigating the complexities associated with tax liens, can be extremely challenging. Our firm, Anderson Bradshaw, is comprised of skilled and experienced tax professionals that can help you through your unique tax situation, including ways to secure tax debt relief. With over three decades of experience in the industry, we have seen many different tax issues and have learned the best ways to handle them based on our clients’ unique situation. For further information or to schedule a free 30-minute Tax Consultation contact Anderson Bradshaw today at 877-550-3911 to or fill out this form to receive a complimentary Tax Evaluation.
