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Taxes and Bankruptcy

Posted on Tuesday, June 23rd, 2015    

Good Day Sacramento,

As always, no legal advice here.  But I do want to let some people know about how they can handle the most frightening creditor of all time!

I’m talking about the tax man.  The IRS and the Franchise Tax Board are often the most intimidating creditors you face as they have extra special power to make your life miserable.  Contrary to popular myth, Bankruptcy can help deal with, or eliminate, this headache.

If your tax debts meet certain criteria, they may be eligible for discharge in Chapter 7 or Chapter 13 Bankruptcy.  These requirements are as follows:

  • The taxes owed must result from income.
  • The taxes must have come due at least 3 years ago. (2012, 2013 and 2014 are not dischargeable as of today.  2011 is potentially dischargeable if you did not file an extension.)
  • Your tax return must have been filed at least 2 years before you file your bankruptcy.
  • There can be no new assessment of your tax debt in the 240 days prior to filing your bankruptcy.
  • And there can be no element of fraud on your part.

Each year you owe goes through this 5-step analysis.  Perhaps your 2010 taxes can meet all five elements, but your 2011 taxes do not.  Whichever years do not qualify for discharge will survive a Chapter 7 Bankruptcy.  If you file a Chapter 13 Bankruptcy, your debts will be split into debts that will discharge and debts that will not.  You will then pay back the taxes that won’t discharge and eliminate the taxes that will discharge.

For those of you with tax debts, it is critical to analyze these debts carefully and know which years are eligible for discharge and which years are not before you file.  It could be worth thousands of dollars.  Give us a call today and we can help sort out your taxes and Bankruptcy.  Call (916) 419-1111 today!

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