Bankruptcy is not a happy time, but it is a time when you
need to keep your wits about you the most. If you have an income tax debt
hanging like a sword above your head, you can get rid of it under Chapter 7 or
Chapter 13 of the Bankruptcy Code if:
- The debt is due to failure to pay income tax. Apart from income tax, no other tax can be eliminated in bankruptcy.
- The tax debt is at least three years old before you apply for bankruptcy. Newer income tax debt is not considered.
- You have no record of filing fraudulent tax returns, willful tax evasion or tax avoidance with the IRS.
- The tax return you filed when in tax debt was filed at least two years before you filed for bankruptcy.
- The IRS assessed your tax debt at least 240 days before you filed the bankruptcy petition.
Only if you have cleared all these five points can you get the IRS to forget about your tax
debt, forever.
What about Liens?
If the IRS placed a tax lien on your property and/or assets before you
filed for bankruptcy, the bankruptcy will not automatically remove the lien.
The IRS still has legal right over the property and/or assets under the lien. The
only thing a bankruptcy order will do is alter the value of your equity in the
property to the time when you filed for bankruptcy.
Managing Assets
When you file for bankruptcy, you need to know which of your assets can
be seized and which can be retained by you. Every state has a different take on
it, but in most states, your household goods, furniture, personal belongings,
social security, unemployment benefits and some kinds of properties can be
retained by the owner. If you have a major equity in a property, stock or IRA,
you run a risk.
Of course, you should consult a specialist before filing for bankruptcy,
but if you have already filed for bankruptcy under Chapter 7 in the past six
years, you will only be able to file for it again after the completion of six
years.