tax forms, pen, calculator

Failing to pay what you owe by the due date will create a tax debt when you file your taxes. Unfortunately, these can often spiral out of control, incurring interest and late fees. As such, you may have a considerable amount of tax debt owed on top of the other funds you are responsible for paying back. However, you may want to consider filing for bankruptcy to obtain some relief. If this reflects your case, it’s necessary to understand how bankruptcy affects tax debts and why you need a Memphis, TN consumer bankruptcy lawyer to guide you through this process.

Can Tax Debts Be Discharged During Bankruptcy?

If you owe tax debts, you may wonder if they can be discharged when filing for bankruptcy. Unfortunately, the answer is sometimes. It’s essential to understand that this applies only to income taxes. Payroll taxes or fraud penalties are non-dischargeable, meaning they cannot be forgiven.

In some instances, you may be able to eliminate federal income taxes if you meet certain conditions. However, if there is a lien on your property, it does not matter if you meet the criteria. The lien will not be forgiven or discharged through bankruptcy. While it eliminates your obligation to pay the debt, meaning creditors cannot attempt collections or garnish your wages, you still must settle the lien before you can sell the property.

What Conditions Must Be Met for These to Be Discharged?

However, if you do not have a tax lien placed on you, you may be able to proceed with the discharge of tax debts if the following criteria are met:

  • The taxes are income taxes
  • The debt is a minimum of three years old
  • You have filed a tax return at least two years before filing for bankruptcy
  • It has been at least 240 days since the Internal Revenue Service assessed the debt
  • You did not commit fraud or tax evasion

If you meet these conditions, you will likely be eligible to have these debts discharged when filing for bankruptcy. However, some jurisdictions have additional regulations, so check with your local district.

How Can an Attorney Help?

As you can see, many considerations are made for one aspect of debt when filing for bankruptcy. This process is incredibly complex, so it’s essential to ensure you enlist the assistance of an experienced attorney.

Our dedicated legal team at the Arnold Law Firm will assess your case to help you through this complex and complicated process. We understand how burdensome living with immense debt can be. However, our firm has the experience necessary to help you through the complex process of filing for bankruptcy. Contact us today to learn how we can assist you during these challenging times.