Taxes and bankruptcy are probably not two words that fill you with excitement or dreams of a wonderful future. Unfortunately, many families find themselves in tough financial battles (especially during economic downturns) and may see bankruptcy as the only solution to their growing problems.
Can bankruptcy help you find your way out of your financial obligations? Well, it is best to discuss all the details with your bankruptcy lawyer who can get into the nitty-gritty and help you understand how the recent changes in the bankruptcy law affect you. However, it's safe to say that not all debts are done away with during a Chapter 7 bankruptcy. Student loans, child support, and federal income taxes are among those obligations that are difficult to get rid of even with bankruptcy.
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You may have heard that income taxes can be discharged if they are more than three years old and were assessed more than 240 days prior to your bankruptcy case. That's true, but like many things that come out of the federal government, the rules are not so simple or user friendly. There are many exceptions and regulations that you need to be aware of.
For example, this three-year timeline begins when you file your income tax and not when the taxes are due. That means that if you never filed your tax return, then as far as the IRS is concerned, the timer hasn't started yet and you are just as liable as ever for the taxes.
Likewise, any extensions on your tax return will complicate things further. The IRS will start counting once you file your tax return after the extension has expired. Did you participate in any bankruptcy hearings or due process hearings in the IRS in the last three years? this can be considered a delay in the government's tax collection efforts, and they can add an additional 90 days to their time limit.
If you fall under these categories, then you will still have to pay your income taxes even during bankruptcy. If you don't have the funds, you might need to go with Chapter 13 in order to create a repayment plan.
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