How tax debt is handled in bankruptcy
Florida residents who file for bankruptcy may have some of their tax debt discharged. This outcome is far more likely for those who file for Chapter 7 bankruptcy, and the tax debt must be at least three years old. While income taxes may be discharged, payroll taxes as well as penalties for fraud must still be paid. However, penalties on tax debts that are discharged are eligible to be discharged as well.
A valid return must have been filed by the taxpayer for the particular that has no information on it meant to defraud the IRS. It also has to have been filed at least two years before the date on which bankruptcy was filed for. A taxpayer must not take any steps that could be construed as willful tax evasion. For instance, an individual who changes his or her Social Security number or submits a blank return may be committing tax evasion. Withdrawing money from a bank and attempting to hide it may also constitute tax evasion.
In the event that tax debt is discharged in Chapter 7 bankruptcy, tax liens may still remain. Therefore, a property owner may need to clear the title before property can be sold. Those who are not eligible for Chapter 7 bankruptcy may ask the IRS for an installment agreement or propose an offer in compromise. If accepted, the offer in compromise will usually lower the taxpayer’s outstanding balance owed.
By filing for bankruptcy, it may be possible for a debtor to obtain a fresh financial start. In addition to discharging or otherwise resolving past tax debt, medical bills and credit card debts may also be discharged or reorganized. Talking with an lawyer may help an individual learn more about what type of bankruptcy is available under eligibility rules.