Taxes can be eliminated in certain circumstances and in certain circumstances your attorney will be able to advise you. For example, if you have tax debt that is more than three years old and if you filed a return for those years and if you did not commit any type of fraud, then the debt can be eliminated in a Chapter 7 bankruptcy. The three-year rule is important because if you applied for and received an extension, you have to wait out three years from the date the tax was due plus any extension. There are also additional rules and regulations that pertain to tax debt which are very complicated so I want to keep it simple here.
If you have tax debt that is more than three years old and if you filed a return every year on time without any type of fraud, then you have a very good chance of that tax debt being eliminated. Inside the Chapter 7 bankruptcy case, you might be required to file an adversary if the IRS does not want to find the tax debt to be eliminated. I have done many cases where once the Chapter 7 was completed, the IRS continue to try to collect on a debt. In that circumstance, we are forced to reopen the bankruptcy case and file an adversary case against the IRS to determine whether or not those tax debts are in fact dischargeable. In my experience, generally those tax debts will be eliminated if the qualifications or prerequisites are satisfied such as the three-year rule and a couple other rules.
Now, in a Chapter 13, you can put tax debt, whether it is nondischargeable or not, and reorganize it. Some debt can be paid back 100%, some debt can be paid back less than 100% depending upon whether or not it’s nondischargeable or not. Your attorney will be able to provide adequate advice on whether or not to propose a Chapter 7 or to propose a Chapter 13.
