Past-due taxes and bankruptcy

Posted by Lauren S. CohenApr 20, 20180 Comments

The United States bankruptcy code allows consumers to have certain debts dischared. Other debts are not eligible for bankruptcy protection. It's important to know the difference prior to filing for voluntary bankruptcy in New York. Those with debts such as recent taxes,that cannot be discharged may need to make an arrangement with the IRS to pay the taxes or negotiate a settlement.

Some tax debts may be discharged through bankruptcy court. For example, tax debts that are at least three years old, filed at least two years prior to the bankruptcy filing and not associated with a fraudulent return may be discharged. Tax debts more recent than three years old are typically not eligible. An attorney that focuses on bankruptcy may help a client determine whether past-due taxes can be discharged or if it would be wise to make payment arrangements with the IRS.

The two main types of consumer bankruptcy deal with taxes differently. Tax bills that might be excluded from Chapter 7 bankruptcy could be paid through a Chapter 13 bankruptcy payment plan. Although they may not be discharged at the end of the Chapter 13 repayment period, tax debts could be included in the payment plan, making the debt significantly lower when the case is discharged.

Taxes and bankruptcy are both complicated issues. New Yorkers with past-due taxes they want to include in a bankruptcy should consult an experienced attorney to determine if their debts are eligible. For those who are unable to have their taxes discharged in Chapter 7 bankruptcy, a Chapter 13 repayment plan might be an effective way to pay the taxes over time.