Bankruptcy
Tax Discharge in Chapter 7 Bankruptcy
Some taxes can be discharged in bankruptcy. Before considering bankruptcy it is important to know which debts can be discharged. At Tax Woes Begone we can analyze your situation and inform you how much of your tax debt is dischargeable. Contact us for more information!
Tax debt that cannot be discharged includes:
- Secured tax debt
- Non-discharge tax debt
- Priority tax debt
Secured Tax Debt Cannot be Discharged
What is secured tax debt? A tax debt becomes secured when the IRS files a proper tax lien. The secured tax debt is the portion of your tax debt that equals the net value of your assets.
A properly filed federal tax lien attaches to all assets of a taxpayer. These assets include bank, brokerage and retirement accounts, vehicles, and real estate. It is important to note that real estate is only affected in the county where the lien is on file.
The net value of an asset is often lower than the fair market value. Cars, for example, usually have no net value. This is because the fair market value of a car declines faster than the car loan balance.
Priority Tax Debt Cannot be Discharged
Priority tax debt includes:
- Newer income taxes, and
- Trust fund taxes.
The trust fund taxes are taxes that one person has to remit on behalf of another person. For example, an employer withholds payroll tax from an employee’s wages. The employer then must remit these taxes to the IRS.
Non-Discharge Tax Debt
- Unfiled returns and SFRs (Substitute for Return)
- Late tax returns filed within two years
- Fraud and willful tax evasion
Some non-discharge tax debts can become dischargeable with time.
Which Tax Debt can be Discharged?
The amount of dischargeable tax debt changes with time. Newer income taxes become old income taxes with time. So, priority tax debt becomes non-priority tax debt. Similarly, non-discharge tax debt changes as late-filed returns become older than two years. So it is important to file any missing returns to get them dischargeable as soon as possible.
At Tax Woes Begone we can provide you with a timeline for your tax debt dischargeability. Contact us today!