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Can bankruptcy eliminate tax debt?

While the federal income tax filing deadline has come and gone, there are many who have not filed their tax returns yet. Some have filed for an extension; hoping to find additional exemptions that will potentially lower their tax bill. But there are others who have simply not filed out of fear that they will owe significantly more than what they have.

It is not uncommon for some to repeat this, only to accrue tax debt for multiple years and have it catch up with them in the form of liens and garnishments.

In these situations, people may wonder if they can shed their tax debt through bankruptcy. This post will discuss some options.

Tax debt is generally regarded as “non-dischargeable debt,” meaning that it normally cannot be discharged in bankruptcy unless certain exceptions apply.

Three year old tax debt – The unpaid debt must have originated from three years ago or later.

Based on a legitimate tax return - If the debt stems from a falsified tax return, it cannot be discharged. This also applies to tax debt based on penalties and interest.

The 240 day rule - The taxes must have been assessed at least 240 days before the filing of a bankruptcy petition.

It may not be easy to know immediately whether your tax debt may be discharged. As such, having a conversation with an experienced bankruptcy attorney can be helpful in giving you a reasonable opportunity to pay off your debt through a repayment plan, or to have them discharged outright. 

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