Can I Discharge My Tax Debt?

If you have a significant amount of income tax debt, you may be wondering if personal bankruptcy can help you. People often refer to tax debt as a type of debt that is entirely nondischargeable in an Oklahoma bankruptcy, but this is not always the case. Depending upon the amount of time that has passed from when you incurred the tax debt and when you ultimately file for bankruptcy, your tax debt could end up being dischargeable. To be clear, tax debt can be very difficult to discharge in bankruptcy, but it may not be impossible. What do you need to know about tax debt and consumer bankruptcy?

Tax Debt and the U.S. Bankruptcy Code

Under the U.S. Bankruptcy Code, there are “exceptions to discharge” when a consumer files for personal bankruptcy. In many cases, tax debt is one of these exceptions to discharge, which means that it cannot be discharged when a person files for Chapter 7 bankruptcy. However, as we mentioned above, in some situations it may be possible to have your tax debt discharged.

In order for your tax debt to remain eligible to be discharged in your Chapter 7 bankruptcy, all of the following must be true:

  • Your tax debt must be from income taxes (and not, for example, from penalties for tax fraud or from payroll taxes, both of which cannot be discharged under any circumstances);
  • You have not committed tax fraud or try to avoid paying your taxes (also known as tax evasion);
  • Your tax return was due at least three years prior to the date on which you filed for Chapter 7 bankruptcy;
  • You filed a legitimate tax return for the income tax debt at least two years prior to your bankruptcy filing; and
  • The Internal Revenue Service (IRS) assessed the debt at least 240 days prior to the date on which you filed your bankruptcy petition.

Keep in mind that you must meet all of the requirements above for tax debt to be dischargeable.

Contact an Oklahoma Bankruptcy Attorney

Determining whether your major debts are dischargeable can be one of the most important issues when you are deciding whether or not to file for personal bankruptcy. If the majority of your debts are not dischargeable, it may not make sense to file for Chapter 7 bankruptcy. An experienced Oklahoma bankruptcy attorney can assess your situations and discuss your options. Contact Deborah Brooks & Associates, P.C. for more information.