If you’re staring at a massive tax debt and you worry that you’ll never be able to pay it off, you may be wondering if filing for bankruptcy is a viable option. It may be, but it’s important to know the rules about how tax debt can be discharged before making any big moves. Get some advice from a New City bankruptcy attorney and make an informed decision.

What Kind of Tax Debt Can Be Cleared?

First, it’s important to note that many types of taxes cannot be clear during bankruptcy. If you owe money for payroll taxes, for example, that won’t be discharged in any form of bankruptcy. If you owe fraud penalties, those won’t be discharged either.

Generally, the only tax debts that can be dealt with through bankruptcy are debts that you owe to the state or federal government. So it’s a good idea to figure out exactly what kind of taxes you owe before you decide to file. Bankruptcy could help you a lot, or it could do very little to resolve your debt.

Are There Other Rules About Clearing Tax Debt in Bankruptcy?

There are also other rules to be aware of when you are trying to deal with taxes through the bankruptcy process. You should know that debts might not be discharged unless:

Your tax debt is at least three years old: You often cannot discharge more recent debt. It’s also important to note that this three-year limit is calculated with the tax year in mind. So if you file for bankruptcy in 2024, your 2021 taxes could be eligible for discharge even though you would normally file them in 2022.

You filed a tax return at least two years ago: If you have not filed a return, you cannot discharge a tax debt. If you filed your return late after extensions expired, that may not count.

You made an honest effort to pay taxes: If you filed a fraudulent tax return or tried to avoid paying taxes altogether, your bankruptcy plan is unlikely to help with tax debts.

Now these are general rules, but everyone’s situation is different. There may be other important exceptions and rules that you should be aware of, and our attorneys will do their best to inform you of them.

What About Tax Liens?

If there has already been a tax lien filed against your property, bankruptcy won’t eliminate it. Even if you file for bankruptcy, you must pay that tax lien if you want to sell the property.

Do I Need a Bankruptcy Lawyer?

The bankruptcy process can require a lot of paperwork and there are important deadlines that must be abided by. It can be hard to keep track of everything, which is why we recommend hiring a lawyer who knows this process well. An attorney from our firm can help you pick the most effective path forward and guide you through this process toward a fresh financial start.

Contact Our Law Firm

When you want to learn more about bankruptcy and if it can help with your tax debt, contact the Lauterbach Law Firm. We can schedule a consultation and tell you more about your options.