Can bankruptcy help me with my tax problem? It depends

Although bankruptcy can help with taxes, it is not always the one-stop solution that many people hope for.

With April 15 around the corner, this time of year is hardly likely to elicit smiles from many people. However, if you owe back income taxes, tax season can be especially worrisome. If you in this situation, you may have heard bankruptcy can help. While this is true in some cases, bankruptcy does not always provide a sure-fire solution like it does with other types of debt.

Help available in bankruptcy

As alluded to earlier, bankruptcy does not always offer the quick discharge of tax debt like it does for credit card debt, medical bills and other dischargeable debts. However, income tax debt may be discharged in certain cases. Whether it is eligible to be discharged depends on the tax year that it became due. Under the bankruptcy laws, it is possible to discharge income tax debt if:

• You have owed the taxes for at least three years. If any extensions were granted by the IRS, three years must have passed since the extended due date.

• You filed the tax return for the taxes in question at least two years before filing bankruptcy. If the return was filed late, it can impair your ability to get a discharge.

• The tax debt was assessed at least 240 days before you filed bankruptcy.

• Your tax return did not contain any misrepresentations or attempts to evade taxes.

Assuming that the tax debt meets all of these criteria, it may be discharged in bankruptcy, along with any associated late fees and interest.

However, even if your income tax debt is not dischargeable under the law, bankruptcy may be able to help make it easier to pay off your taxes. If you owe other debts that exceed your tax debt, Chapter 7 bankruptcy can eliminate many of those debts. This will allow you to devote more of your financial resources towards your tax debt.

If you primarily owe tax debt, or would like more time to pay your taxes, Chapter 13 may be a better solution. During this type of bankruptcy, your tax debt becomes part of the repayment plan, allowing you to pay your taxes in monthly installments over three to five years. While the plan is in effect, the IRS may not garnish your wages or use other means to collect the delinquent debt, as long as you make your payment each month.

Speak with an attorney

Bankruptcy is only one way to address income tax problems. As such, it may not be appropriate in all cases. If you owe back taxes, it is wise to speak with an experienced bankruptcy attorney. An attorney can analyze your situation and recommend the best way to ameliorate your tax status.