Imagine checking your email and you notice a message from the Internal Revenue Service. The email states that you owe for back taxes. What do you do now? Can bankruptcy help with those tax debts? Bankruptcy can affect your tax debt differently depending on several factors. With either type of bankruptcy (Chapter 7 or Chapter 13) upon filing the case a stay goes into effect which stops any collection activities on the filing debtor.
Tax debt is unsecured, categorized as priority and non-priority unsecured debt.
- Priority debt is non-dischargeable unless paid in full through a Chapter 13 Bankruptcy
- Non-priority debt is dischargeable
Multiple time frames are used when our bankruptcy attorney in Birmingham determine whether a tax debt is priority or non-priority. To begin, tax debt is non-dischargeable if the return was either:
- Not filed
- Filed late and less than two years prior to the filing of your bankruptcy petition
- The tax filing deadline was due within a three-year period prior to the filing of your bankruptcy petition
- The tax claim is assessed within 240 days prior to the filing of your bankruptcy petition
- If the taxpayer filed a fraudulent return or willfully attempted to evade or defeat the tax
There is usually one common mistake in checking the three year due date requirement. Rarely is it the actual tax return filing deadline, either April 15th or October 15th, due to holidays and weekends. Can bankruptcy help with tax debts? In conclusion, yes, it can! Give our local Huntsville & Montgomery bankruptcy attorney a call today and get the help you deserve!
Devin O’Dell specializes in Bankruptcy and Probate & Estates Law. Mrs. O’Dell is licensed to practice in the State of Alabama and both the U.S. District Court of Northern and Middle Districts of Alabama. She regularly writes about bankruptcy and wills & trusts and enjoys speaking with clients about their estate planning needs.