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Is my tax debt eligible for a bankruptcy discharge?

You may have heard that a personal bankruptcy will not cover any federal taxes that you owe. Like many Georgia residents, you may also have financial difficulties that only become worse because of tax debt. Your challenges may be significant enough to make you think about filing for bankruptcy, but you are unsure whether it could help. It can certainly be discouraging to think you have no relief when it comes to your overdue taxes. It may surprise you to learn that you may have some recourse, after all, depending on several factors.

According to FindLaw, some tax debts may be eligible for a discharge through Chapter 7 bankruptcy. You would need to meet the following conditions:

  • You filed a tax return two years or earlier before filing for bankruptcy.
  • The debt was assessed 240 days or more before you filed for bankruptcy (the 240-day rule).
  • You had this tax liability for at least three years.
  • The debt is for income taxes.
  • The IRS did not find you guilty of tax evasion or committing tax fraud.

It may also help to learn that penalties on your dischargeable tax debt are also eligible for discharge, provided they are not penalties related to tax fraud. However, trust fund taxes, debt from unified returns, taxes withheld by your employer from your paycheck and penalties associated with ineligible tax debt are not dischargeable. You may learn more about taxes and bankruptcy at the Internal Revenue Service’s website.

Tax law is complex, especially when it comes to past debt and bankruptcy. You may have options available, including Chapter 7 and Chapter 13 bankruptcy, even if your tax debt is not eligible for a discharge. In matters involving taxes, bankruptcy and finances, it is always a good idea to evaluate your circumstances carefully before coming to a decision.

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