Is Bankruptcy A Possibility for Tax Dues?

Some individuals could erroneously believe that tax debt is never dischargeable based on information they have heard. It is untrue. Others might believe it is the same as your credit card debt and can be quickly dismissed. That is not always the case. The one thing you must understand is that filing for bankruptcy will undoubtedly reduce your tax debt. It can sometimes be canceled like any other debt if the proper conditions are met. 

Other times, you could be required to follow certain instructions or wait a specific amount of time.  Even if it may not be current or dischargeable, bankruptcy can help manage the debt and eliminate penalties and interest. To get help from Dutchess County, NY bankruptcy attorney, read on.

The discharge of a tax debt is not automatic when you file for bankruptcy.

Bankruptcy can be used to erase many different kinds of debt. Regrettably, there are some particular conditions for tax debt. If you decide to file for bankruptcy, dealing with a qualified lawyer is crucial because the laws governing it and tax debt are intricate. However, the timing of dealing with taxes and bankruptcy is the most crucial concept to comprehend before declaring bankruptcy

Many of the laws governing bankruptcy and tax debt were put in place to stop people from declaring bankruptcy as soon as their sizable tax obligation became due. Instead, you might use bankruptcy to lessen some of the weight of a long-standing tax bill. Although bankruptcy can be used to deal with previous debt, you should not count on using it to get out of a new tax bill immediately.

Additionally, filing for bankruptcy might release money being paid towards other debts so that it can be applied to tax debt. By improving your entire financial situation, you will be able to deal with your tax debt problem indirectly.

It is also crucial to understand that the timing of your tax return filing will determine whether bankruptcy is possible for you to get relief from your tax burden.

Making a Tax Return

As a general rule, you are eligible for an income tax discharge if:

  • You filed the return at least two years before declaring bankruptcy, and the tax is older than three years.
  • The tax had to be either not assessed at all by the IRS or assessed by it at least 240 days prior to your filing for bankruptcy.
  • You did not submit a false tax return.

The catch is if a return is submitted after the deadline. You cannot be discharged if the tax is over three years old, yet no return was ever filed. 

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