Discharging Tax Debt in Bankruptcy

Atlas Consumer Law Can Explain Your Options

A lawyer who tells you that taxes cannot be discharged in bankruptcy may be selling you short. A lawyer who flatly says that bankruptcy has no tax ramifications may steer you into future trouble. So, can tax debt be eliminated through bankruptcy? It depends. Some back taxes can be discharged, but the laws are complex and fact-specific. Atlas Consumer Law will give you frank and definitive answers about your tax debts in the context of your bankruptcy.

Contact our Chicago bankruptcy attorneys for more information about eliminating your tax debt.

Can Tax Debt Be Eliminated Through Bankruptcy?

Many taxpayers are under the assumption that any money owed to the government for tax debt cannot be discharged through bankruptcy. Unfortunately, in many situations, this can be true. However, for many consumers, filing for bankruptcy may relieve them of their tax debts provided they can meet a very specific set of criteria.

  • Consumers may be eligible to discharge tax debt in bankruptcy when:
  • The due date for filing the tax return is over three years old
  • The actual tax return was filed more than three years ago
  • The tax debt is from individual income taxes, not property taxes
  • The IRS has assessed the tax debt at least 240 days prior to filing
  • The tax return was not fraudulent and was filed correctly
  • The filer has not committed the crime of tax evasion

It is important to realize that the above criteria require that the tax return actually be filed. Tax debts that come from returns which were never filed remain non-dischargeable in a Chapter 7 or Chapter 13 bankruptcy. It is also common for the IRS to impose tax penalties on individuals that have failed to file their tax return for a given year.

Our firm may be able to negotiate with the IRS or Illinois tax collection authorities on your behalf. In some cases, we are able to secure an offer in compromise, or an agreement that allows you to settle your tax debt for less than the total amount owed. We will help you explore all the options available to you so you can seek relief from your debt.

What Are the Tax Considerations of Bankruptcy?

Debt that is eliminated through a bankruptcy filing does not count against you for purposes of income tax returns. In other words, most people have no tax ramifications from declaring bankruptcy. However, related matters—such as foreclosure or short sale in conjunction with bankruptcy, sale of real estate after bankruptcy or debts charged off by a credit card company outside of bankruptcy—might have tax implications as capital gains/taxable income.

Contact Our Chicago Bankruptcy Lawyers to Learn More

Do you have a large tax debt burden? Is the IRS or the Illinois Department of Revenue threatening legal action against you? If so, it is important to be proactive by exploring your legal options. At Atlas Consumer Law, our legal team has significant experience helping businesses and individuals resolve their tax debt problems.

Located in Lombard, Illinois, we handle bankruptcy cases throughout Chicago and the surrounding suburbs. Our attorneys are knowledgeable about both bankruptcy and foreclosure law, as well as debt settlements and bankruptcy alternatives. We can also address potential tax consequences in your case, so don't wait to contact our firm.

Are you struggling with tax debt? Contact Atlas Consumer Law to request an initial consultation.

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