Can Back Taxes Be Included in Bankruptcy?

Dealing with back taxes can cause a lot of stress and financial burden for anyone facing financial hardship. If you’re struggling to pay off overdue taxes, you might wonder whether bankruptcy offers a solution.

Can your back taxes be included in bankruptcy? Here’s what you need to know.

Understanding Back Taxes

Back taxes refer to unpaid taxes from previous tax periods. These can arise due to various reasons, such as failure to file tax returns, underreporting income, or inability to pay taxes owed. When left unresolved, back taxes can lead to penalties, interest charges, and collection actions by tax authorities, exacerbating financial difficulties for taxpayers.

Bankruptcy and Tax Debts

Contrary to common belief, not all tax debts are dischargeable in bankruptcy. Certain types of tax liabilities may be eligible for discharge. However, the court considers other debts priority debts. They are non-dischargeable through bankruptcy. Here’s a breakdown of how tax debts are treated in bankruptcy:

Dischargeable Tax Debts

In Chapter 7 bankruptcy, qualifying tax debts may be discharged if they meet specific criteria:

Taxes owed are for income tax (not payroll taxes or other types of taxes)
Tax returns for the debt in question were due at least three years before filing for bankruptcy
Returns filed at least two years before filing for bankruptcy
Taxes assessed by the IRS or relevant taxing authority at least 240 days before filing for bankruptcy
The taxpayer did not engage in fraudulent or willful tax evasion

If these conditions are met, eligible income tax debts may be discharged in Chapter 7 bankruptcy, providing relief from repayment obligations

Non-Dischargeable Tax Debts

Some tax debts are non-dischargeable and cannot be eliminated through bankruptcy. These typically include:

Payroll taxes withheld from employees’ wages
Trust fund taxes collected by a business entity but not remitted to tax authorities
Taxes resulting from tax fraud or willful evasion
Property taxes or other non-income taxes

The court classifies these types of tax debts priority obligations. You must pay them in full, even in bankruptcy proceedings

Chapter 13 Bankruptcy and Tax Repayment Plans

In Chapter 13 bankruptcy, individuals with regular income can create a repayment plan to address outstanding debts, including tax liabilities. The court requires you to repay non-dischargeable tax debts in full through the Chapter 13 plan. However, the plan may also include provisions for the repayment of other debts, such as credit card balances or medical bills. Chapter 13 bankruptcy offers a structured approach to debt repayment while providing relief from creditor collection actions.

Seeking Professional Guidance

Navigating the complexities of tax debts and bankruptcy requires careful consideration of your financial situation, tax liabilities, and available legal options. You can include back taxes in bankruptcy under certain circumstances.

However, the eligibility for discharge and treatment of tax debts depends on various factors, including the type of taxes owed and the bankruptcy chapter filed. You don’t have to face these challenges alone. Knowledgeable professionals are available to guide you through the process and empower you to make informed decisions about your financial future.

If you’re contemplating bankruptcy as a means of addressing back taxes or other debts, it’s crucial to seek guidance from a qualified bankruptcy attorney or tax professional. To learn more about the relationship between bankruptcy and tax debts or if you’re ready to get started with filing, contact the Law Offices of Robert M. Geller at (813) 254-5696 to schedule a free consultation with an experienced attorney.