Taxes & Bankruptcy: In Bankruptcy, are my past due taxes eliminated?

• 15 Feb 2018
• Bankruptcy Lawyer

In Bankruptcy, Are My Past Due Taxes Eliminated?
Tax liability are considered a debt but not handled the same as other debts such as credit cards and medical bills in Bankruptcy Court. Tax debts meeting specific criteria can be eliminated, or discharged, through bankruptcy. A Bankruptcy Lawyer can help determine if a specific tax debt is eligible for discharge. Here is a guide to help determine if a tax debt can be discharged through bankruptcy.

Eligibility Requirements

To be discharged through bankruptcy, the taxes must meet certain eligibility requirements.

1. The taxes must be income based including both federal and state income tax.

2. Eligible taxes must be three or more years past due. This date includes all valid extensions filed on the return.

3. Eligible taxes assessed at least 240 days prior to filing may be eligible for bankruptcy. This time frame may be extended if an offer in compromise existed or if a previous bankruptcy exists.

4. A tax return must have been filed for the two previous years prior to filing for bankruptcy. Some courts do not consider late returns as filed returns. A Bankruptcy Lawyer can help determine whether a late return meets criteria to support bankruptcy.

5. The taxes cannot be considered willfully or fraudulently evaded.

Tax Debts Not Eligible For Discharge

1. A tax lien, or a legal claim made by the government against property due to unpaid tax debt, is not eligible for discharge under bankruptcy. A tax lien can be discharged under Publication 783 for eligible candidates.

2. A tax refunds received erroneously is not eligible for discharge. A tax refund is defined as erroneous when the recipient was not entitled to the refund regardless of intent or who made the error.

3. Property taxes cannot be discharged in bankruptcy. This includes both real and personal property. A tax lien can be assessed resulting in foreclosure if not paid in full.

4. Employee withholding taxes can never be discharged through bankruptcy. These taxes are special taxes which must be paid in full.

5. Non-punitive tax penalties related to non-dischargeable taxes occurring less than three years before filing bankruptcy.
Do I lose future tax refunds?

When back taxes are discharged in bankruptcy court, any tax refund entitlement for that year will be considered an asset and used to pay creditors. Any future tax refunds are not part of the bankruptcy and are considered refundable.

Can I file for bankruptcy more than once?

You can file subsequent bankruptcies after a successful discharge but time limits apply. Generally, an eight-year span is required between multiple Chapter 7 filings. Chapter 13 filings only require a two-year span since the debt is actually paid through the bankruptcy. Those time frames vary if you are filing a different bankruptcy then previously filed. Filing a Chapter 7 bankruptcy after a Chapter 13 bankruptcy requires a six-year span. Filing a Chapter 13 bankruptcy after a Chapter 7 bankruptcy only requires a four-year span. A Bankruptcy Lawyer can help to determine eligibility and which option is best for you.