Most taxes can’t be eliminated in bankruptcy, but some can.

You may hear radio commercials offering the hope of eliminating tax debts in bankruptcy, but it’s not as simple as it sounds. Most tax debt can’t be wiped out in bankruptcy — you’ll continue to owe them at the end of a Chapter 7 bankruptcy case, or you will have to repay them in full in a Chapter 13 bankruptcy repayment plan.

If you need to discharge tax debts, Chapter 7 bankruptcy will probably be the better option — but only if your debts qualify for discharge (see below) and you are eligible for Chapter 7 bankruptcy.

Managing Partner Richard Jacoby gives a brief overview of Chapter 7 Bankruptcy and the importance of hiring a dedicated Long Island bankruptcy lawyer to assist with your case.

Our bankruptcy lawyers are always prepared to help you, so contact our firm today! Call 631-289-4600.

When You Can Discharge a Tax Debt

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy, only if all of the following conditions are true:

  1. The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
  2. You did not commit fraud or willful evasion. If you filed a fraudulent or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can’t help.
  3. The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
  4. You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. In most courts, if you file a late return, (meaning your extension have expired and the IRS filed a substitute return on your behalf), you have not filed a “return” and cannot discharge the tax. In some courts, you can discharge tax debt that is the subject of a late return as long as you meet the other criteria.
  5. You pass the “240-day rule”. The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing).

You Can’t Discharge a Federal Tax Lien

If your taxes qualify for discharge in a Chapter 7 bankruptcy case, your victory may be bittersweet. This is because bankruptcy will not wipe out prior recorded tax liens. A Chapter 7 bankruptcy will wipe out your personal obligation to pay the debt, and prevent the IRS from going after your bank account or wages, but if the IRS recorded a tax lien on your property before you file for bankruptcy, the lien will remain on the property. In effect, this means you’ll have to pay off the tax lien in order to sell the property.

FOR MORE INFORMATION CALL JACOBY & JACOBY AT (631) 289-4600.

Why Choose Jacoby & Jacoby?

Experienced and Qualified Representation

When you work with a New York bankruptcy lawyer at Jacoby & Jacoby, you have the benefit of our years of experience and our extensive resources, all at your disposal as you face these trying times. The stress and emotions associated with mounting debt may leave you feeling hopeless and lost. Thankfully, with the help of a lawyer at our firm, you can begin to take control of your finances and experience much needed relief.

By discussing your situation with an attorney at our firm, you can decide whether bankruptcy is right for you. You can learn what your options are. When you work with an experienced attorney at Jacoby & Jacoby, you will have the support and legal counsel of a professional who will know what to do to help. Finally, you can experience relief from creditors. You can stop worrying about losing your possessions or your home.

Contact our firm today, and learn more about the many ways that we can come to your aid. Call Jacoby & Jacoby at (631) 289-4600.

  • NACBA logo
  • NYSBA logo
  • SCBA logo
  • NYSTLA logo
  • BBB logo

Schedule a Free Consultation

Schedule your FREE bankruptcy evaluation at (631) 289-4600

  • This field is for validation purposes and should be left unchanged.