You may have seen advertisements on television and the internet with people claiming that they can get rid of your IRS debt with a simple bankruptcy. The fact is that it’s not as easy as the advertisements market the process to be. Those facing serious financial hardship in Illinois and around the country may not see any relief unless they understand what areas they can realistically tackle with bankruptcy. The following includes further information on this topic and the options for debt relief you may have at your disposal.
Wiping out federal taxes with Chapter 7
Bankruptcy law can be very complex as there are many things that need to align for you to be able to take advantage of debt discharge. One of the most popular types of bankruptcies for individuals is Chapter 7. Within Chapter 7, a bankruptcy trustee will dismiss all debts, including selling some assets to pay back creditors. Can you use this type of bankruptcy to pay off IRS debts? The answer to that is yes and no. The fact is that Chapter 7 may be used to remove tax debt only if certain conditions are met.
Conditions for removing tax debt
You may be able to use Chapter 7 bankruptcy to remove tax debt. However, you do need to meet the following conditions to legally begin the process. The first condition involves the type of debt you owe. Income tax can be removed from your record while payroll taxes or fraud penalties remain. Next includes the lifetime of the debt. You must have had the debt for at least three years and have filed your taxes each year. Last is the 240-day rule: The IRS must address the debt at least 240 days before a bankruptcy petition has been created.
Bankruptcy can be a stressful and complex process to go through. It is important to consult with an attorney through each stage of the process. Doing so may allow you to avoid costly mistakes.