When you’re drowning in debt, bankruptcy for tax debt remains a possibility for starting fresh. Or, at least, it’s an option in some situations.
Unfortunately, this solution won’t permanently resolve your issues with tax debt. After all, the IRS places significant restrictions on taxpayer bankruptcy.
Keep reading to discover the role bankruptcy could play in your tax debt situation — and whether alternative solutions might be preferable.
When Is Bankruptcy an Option for Tax Debt?
Unfortunately, IRS debt can only be discharged under a very specific set of circumstances:
- Only income taxes are eligible. Payroll taxes cannot be eliminated via bankruptcy.
- No history of willful evasion or fraud.
- The tax return was due at least three years prior to the filing for bankruptcy.
- The tax return was filed at least two years prior to filing for bankruptcy.
- The IRS assessed the date a minimum of 240 days prior to filing for bankruptcy — or not at all.
Bankruptcy Can Still Help You Manage Debt
Even if your tax debt cannot be discharged via bankruptcy, chapter 13 may still be worth pursuing. This allows you to satisfy your IRS tax lien. You may even be able to discharge credit card balances stemming from your efforts to pay off the tax debt. Keep in mind, however, that nondischargeable tax debt must be paid over the course of your chapter 13 plan.
If you ultimately decide that bankruptcy is not a viable solution, it may be worth your while to explore alternative options. Depending on your situation, you may be able to take advantage of currently not collectible status, installment payments, or an offer in compromise.
Not sure which solutions will bring your IRS drama to a close? The Highland Tax Group can help you weigh your options. Contact us today to get started.