Navigating Chapter 7 Bankruptcy and Back Income Taxes: The Intricacies of Income Tax Debt in Chapter 7 Bankruptcy

Closeup woman filling form of Individual Income Tax Return,

When the weight of debt becomes too much, Chapter 7 bankruptcy stands as a viable option for many. However, if you’re saddled with back income taxes, you may be wondering if these can be incorporated in your bankruptcy. The answer isn’t straightforward; it oscillates between yes and no.

For insights tailored to your specific situation, consulting a bankruptcy attorney is paramount and you can do so easily by calling Law Offices of Terrence Fantauzzi at (909) 552-1238. Until then, allow this guide to shed light on the potential avenues available to you.

The Nuances: Discharging Income Taxes is Possible, But Conditional

At the outset, income taxes seem impervious to Chapter 7 bankruptcy. Yet, there’s a silver lining: exceptions exist. Five specific criteria can determine your eligibility. Fulfill these, and you might just be able to roll your income tax into the bankruptcy equation. To best understand your standing, reach out to Law Offices of Terrence Fantauzzi at (909) 552-1238.

Nature of Tax Debt: Federal is the Keyword

Chapter 7 bankruptcy offers a lifeline only for federal income tax debt. If you’re grappling with payroll tax dues or state income tax liabilities, bankruptcy won’t provide respite. The only contender for discharge here is federal income tax.

Age of Debt: The Three-Year Rule

Bankruptcy doesn’t cater to new federal income tax obligations. For your debt to qualify, it needs to have matured, sitting on your records for at least three years.

The 240-Day Mandate: Timing is Crucial

Bankruptcy law has another chronological stipulation. Beyond the three-year criterion, the 240-day rule plays a role. This mandates that the IRS should have assessed your tax debt a minimum of 240 days (approximately eight months) before your bankruptcy filing.

Tax Return Submission: A Two-Year Window

To stand a chance at discharging your tax debt, a timely filed federal income tax return is indispensable. You must have submitted it at least two years before your intended bankruptcy filing date. For those who’ve delayed tax submissions, the waters get murky, amplifying the need for legal guidance.

The Integrity Clause: No Fraud Allowed

Any traces of tax evasion or deceit can dash your hopes of discharging tax debts. For instance, if you’ve concealed funds in overseas bank accounts, only to be unmasked by the IRS, such a debt remains untouched in a bankruptcy scenario.

Meeting the Requirements: What’s Next?

If the above conditions resonate with your situation, the door to incorporating tax debt in a Chapter 7 bankruptcy could be open. Don’t tread this path alone; Law Offices of Terrence Fantauzzi is here to advise, guide, and assist. Reach out to us at (909) 552-1238, and together, let’s explore the bankruptcy landscape tailored to your circumstances.

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