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Is tax debt discharged in bankruptcy?

Many Tennessee residents are struggling with tax debt. This debt can become a huge burden as people try to get their financial situation under control. Many people may wonder if turning to Chapter 7 bankruptcy can help to relieve their tax burden.

In general, tax debt is not easily discharged. However, under certain circumstances, tax debt can be discharged in bankruptcy. This blog post should not be used as specific advice about whether your tax debt can be discharged, however, an attorney may be able to help you make that distinction.

In order for tax debt to be discharged, the debt and any penalties assessed on that debt must meet several qualifications. One, the debt must be for income taxes. Other types of tax debt -- such as payroll debt -- is not dischargeable. The debt must also be at least three years old. Also, the tax debt must have been assessed by the IRS at least 240 days before the bankruptcy filing.

You must also meet certain qualifications in order for the debt to be discharged. First, the tax return for this debt must have been filed at least two years before you filed for bankruptcy. Second, you must not have committed tax fraud or wilful tax evasion.

According to IRS rules, some types of tax debt are not dischargeable, however. These include debts on tax returns that were not filed and penalties from tax debt that is otherwise ineligible for discharge.

Tax debt is just one of the many types of debt that may be subject to discharge in a Chapter 7 bankruptcy. By speaking with an attorney, people can get a better idea of how Chapter 7 can provide a fresh financial start.

Source: Findlaw.com, "Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy," accessed Jan. 19, 2015

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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