More and more these days in my bankruptcy practice I have clients coming to me as their lawyer and wanting to know what to do with not only their credit card debt but also their tax bills. I'll talk briefly today on what a Chapter 7 bankruptcy can do in terms of your Federal IRS tax debt.
The first question I must ask my bankruptcy clients is "did you file your taxes? And When?" These are probably the two most important questions when figuring out whether you can discharge your old IRS tax debt. The general rule of thumb is that you must have a tax debt that's at least 3 years old and that the obligation to pay that debt came about also 3 years back.
The best example would be its 2009 now; you filed your taxes on time back in 2003 and owed the IRS 5,000. You never paid the bill and now you owe 9,000 with interest and penalties. Since you filed the return on time and your debt arose three years ago due to the filing you should be able to discharge that debt.
What if I didn't file, you ask? Well then it will depend. An easy case is where the IRS has filed for you; even if the debt is more than 3 years old but you haven't filed or the IRS filed on your behalf the debt is non-dischargeable in a Chapter 7 bankruptcy. Basically the main issue that tax debt and chapter 7's revolve around with is time.
Tax law and dischargability is a very complex area of bankruptcy law and this short discussion covers only the most basic rules...and these rules change. Please be sure to seek out a good bankruptcy firm and sit down with an attorney before making a decisions or taking any actions.
-One day at a time
