File For Bankruptcy And IRS Tax Debt Forgiveness In Brighton, MI

In a Chapter 7 bankruptcy, all non-priority debts can be discharged and settled. Non-priority debts include items such as credit card debt, mortgages, and loans. They also include some types of tax debt. In a Chapter 7 bankruptcy, a debtor can protect some of their assets up to certain exemption amounts. A Chapter 7 bankruptcy usually takes a few months from filing to discharge.

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy is a much longer and more complicated process when it comes to IRS tax debt settlement. It can take several years. In a Chapter 13 bankruptcy, the debtor submits a budget to the bankruptcy court. This budget must pay back the debtor’s priority debt and necessary living expenses. Any excess money is paid to non-priority creditors. Any non-priority debt that is not paid through bankruptcy is discharged.

There are certain income thresholds that must be met in order for a debtor to qualify for a Chapter 7 bankruptcy. While there are exceptions to the income thresholds, generally this is what will determine if a taxpayer qualifies for a Chapter 7 bankruptcy.Chapter 7 Versus Chapter 13 Bankruptcy in IRS Tax Filings

There are many rules that come into play to determine if federal income tax balances are dischargeable in bankruptcy. Below are some of the main guidelines used to determine whether a balance can be discharged in bankruptcy:

• 3 Years After Due Date
• 2 Years After Filing
• 240 Day Rule

Bankruptcy dischargeability looks at the latter of the three dates above. If a return was filed on time, with no additional assessments, then 3 years after the due date is likely the date that the taxes would be eligible for bankruptcy. However, if the return was filed late, or if there was an additional assessment of tax on the year, then the 2-year rule or the 240-day rule may determine the eligible discharge date for the tax debt.

Bankruptcy eligibility is tax year specific. Each year has to be analyzed to determine its own individual discharge date. Some years of tax debt may be eligible for discharge, while others are not. Depending on how the returns were filed, they may all have the same discharge date, or they may all have different dates.

However, there are other IRS tolling events that may affect the date that taxes are eligible for discharge. These tolling events add additional time to the discharge dates of the back taxes.

Not all taxes are eligible for bankruptcy discharge in the eyes of the IRS. Individual income taxes are eligible for bankruptcy discharge in most situations as long as the time guidelines have passed. However, if the taxpayer did not file their own return, then the balances may not be eligible for a bankruptcy discharge.

If the IRS files a Substitute for Return (SFR) for a taxpayer, then that balance is generally not eligible for a bankruptcy discharge, even if the taxpayer later files a return to replace the SFR. However, bankruptcy still may discharge some of the interest and penalties.

Payroll taxes and IRS civil penalties are also not eligible for bankruptcy. Unlike individual income taxes, bankruptcy will not discharge these taxes, regardless of how old they are. These taxes can be resolved through other debt resolution programs, but not through bankruptcy.

For some, bankruptcy can be a very effective way to eliminate IRS tax debt that they are unable to pay. It also can eliminate your back tax liabilities. However, there are also downsides to filing for bankruptcy. One of the largest downsides is the effect that it has on your credit score.

If you are considering filing bankruptcy, contact the tax debt professionals at Austin & Larson Tax Resolution. We can review your IRS transcripts to help you determine which of your tax balances are dischargeable. We can also monitor your case after the bankruptcy to confirm that the IRS properly discharges your balances.