As a general rule, you cannot discharge your general debts in bankruptcy. However, under certain circumstances, this debt relief option may eliminate at least some of your tax obligations.
The odds of discharging this type of debt are not as high in a Chapter 13 as they are in a Chapter 7. So, what tax debt can you discharge and which can you not?
All the right pieces must be in place
Determining whether you may discharge a certain type of tax debt in bankruptcy depends on the following:
More specifically, your debt must meet the following criteria for the bankruptcy court to even consider discharging your tax debt:
If the court discharges tax debt that meets these criteria, any penalties assessed by the IRS also go away. One thing that won’t go away is a federal tax lien placed on your property. You will need to satisfy this lien if you wish to sell your property.
What happens if you can’t discharge your tax debt?
If you leave the bankruptcy process with tax debt still intact, you may consider either filing an offer in compromise or working out an installment agreement with the IRS. An installment agreement is for the total amount of the debt while an offer in compromise allows you to repay only a portion of it.
You may receive a discharge of other debts such as medical bills and credit cards, which could free up much-needed income to pay toward a remaining tax debt.
How do you know if you can discharge your tax debt?
Between the tax codes and the bankruptcy rules, figuring out whether your tax debt is eligible for discharge can be a challenge. Even if you readily know that it isn’t, you could more than likely benefit from help in determining whether Chapter 7 bankruptcy is the right option for you and if you qualify to file it.
If you do, the process is paper intensive and often confusing. One missing piece of information or one missed deadline could cause a dismissal of your bankruptcy or leave you with a debt that you meant to include. To help you reap as much benefit from the process as possible, you may want to bring in an experienced Ohio attorney to assist you.
Are you ready to take the first step toward reaching your goals?
Contact us today to schedule a Initial Consultation with our Toledo, Ohio, attorneys.