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Tax debt and bankruptcy

Bankruptcy might seem like the right solution for some people in Virginia who are struggling with debt. People might file for Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy discharges all allowable debts. A Chapter 13 allows a person to work out a payment plan in which some debts may be paid off. However, there are some types of debt that cannot be discharged, and tax liabilities may be among them.

A tax debt that can be discharged must fulfill certain conditions. It must be in association with a tax return either due a minimum of three years or filed a minimum of two years before the bankruptcy filing. It must also have been assessed a minimum of 240 days prior to the bankruptcy filing.

Tax debts that cannot be discharged include withholding funds for which a person is liable. If no return or a return that was frivolous or fraudulent is filed, those taxes cannot be discharged. If the taxes are from a late return filed within two years of the bankruptcy filing or if they are taxes a person tried to evade, they cannot be discharged. There are further complexities associated with other types of taxes, such as property tax.

Other types of debts that cannot be discharged include alimony, child support and most student loans. People may want to talk to an attorney about their debt situation and possible solutions. The attorney may be able to advise regarding what type of bankruptcy a person is eligible to file for and what debts are allowable. Certain assets, such as retirement accounts, may be protected in bankruptcy. A bankruptcy filing also at least temporarily stops all action against a debtor ranging from creditor harassment to foreclosure and lawsuits.

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Bowen Ten Cardani, PC

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