It's no secret that debt is one of the most stressful life events one can experience. But for most types of debt, there are solutions. Many creditors, such as credit card companies and medical facilities, will be happy to set up payment plans to make sure your debt is settled. Some hospitals even have funding available for those who cannot afford their medical bills. You may also be able to settle your unsecured debts through bankruptcy. However, when it comes to tax debts, the federal government can be a little harder to work with, and tax debts are not refundable in bankruptcy. There are always exceptions and a bankruptcy attorney can help you work with the government to take care of your tax debts.
How are tax debts managed?
Although you cannot pay your tax debts through a Chapter 13, the amount you owe will be taken into consideration when designing your repayment plan. You may be able to pay back taxes when you file a Chapter 7, but only if you meet these five criteria:
1. In general, only income taxes can (or cannot) be included in a bankruptcy; all other types of taxes are generally excluded.
2. You cannot include your tax debt if you have committed tax fraud or if you have intentionally avoided paying taxes. In these situations, you will also be faced with other legal consequences.
3. Your tax debt must be at least three years from the date of bankruptcy.
4. You must have filed a tax return for the year in which you owe tax at least two years before filing for bankruptcy.
5. You will have to comply with the "240 days rule", which means that taxes must not be assessed yet or have been assessed at least 240 days before filing for bankruptcy.
If you fall behind on your taxes enough, the IRS can issue a tax lien against your property. In these situations, you may be able to include the taxes in your bankruptcy, but this would not apply to your lien. You will still owe the amount of the lien, but the IRS cannot garnish your salary or take control of your bank accounts to collect the debt. To take care of the lien, you may need to sell your property and pay off the debt, negotiate a payment plan, or even negotiate a settlement for a lower lump sum. It can be tedious and stressful, but it can be worth your while.
If you have received notifications from the government, particularly regarding tax debt and liens, it is important to act quickly. It can be intimidating to deal with government agencies, especially when it comes to money. A bankruptcy attorney can offer professional advice so that you can progress with confidence and take control of your situation.