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Bankruptcy and Taxes—The Basics

Posted on in Bankruptcy

The relationship between bankruptcy and taxes is a complicated one. Many families who are facing financial insolvency are not up to date on their taxes, which can inhibit their ability to file for bankruptcy. If you are considering bankruptcy, the most important first step is to seek the counsel of a qualified bankruptcy attorney. The next is to make sure that your tax debts are sorted. “Not all tax debt can be discharged in bankruptcy,” according to Fox Business. Other debts that can't be discharged in bankruptcy include child support, personal injury payments, fines resultant from a crime, fraud penalties, and student loans, among other things. If you are facing financial insolvency, paying your taxes anyway may be the best thing you can do to be eligible for bankruptcy when necessary.

The other important thing to keep in mind regarding the relationship between taxes and bankruptcy proceedings is that “if you are under audit, bankruptcy will not stop the audit,” according to Fox Business.

There are a few instances when tax debt would be dischargeable during bankruptcy. For this to be the case, “they must be personal income taxes which are at least three years old as counted from the due date of the tax return including extensions.” Furthermore, according to Fox Business, “if the IRS has filed a tax lien against your real or personal property, you cannot have equity in that property.”

If you haven't filed your tax returns at all, those debts cannot, under any circumstances, be eradicated by bankruptcy. According to Attorneys.com, “debtors must be current in meeting all filing obligations to federal and state taxing authorities, even if they are not caught up in making all of their payments for tax debts.” You have your best chance of recuperating tax debts if you file for taxes far ahead of filing for bankruptcy.

If you or someone you know is considering filing and have questions about taxes and bankruptcy or any other aspect of proceedings, don't go through it alone. Contact an experienced bankruptcy attorney today.

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