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Expertise

Does Bankruptcy Cover Back Taxes?

Debts can be of different types. Even though when you are filing bankruptcy for chapter 13 or chapter 7 with the aim of wiping off your debts, there will be some liabilities that will be there even after getting a bankruptcy discharge. Let’s take a look at whether taxes are like that or not.

Will Bankruptcy Erase Your Tax Liability?

The debts that get eliminated with filing bankruptcy are called dischargeable debts. The aim of filing bankruptcy is to let go of this debt especially when you are trying to reduce your financial burden. If your case gets dismissed, this means you are still liable for the debts you owe and your creditors can still pursue you for the money.

The following debts get discharged for both types of the bankruptcy filing and are not limited in these:

  • Personal loans
  • Medical bills
  • Overpayments for social security
  • Business debt
  • Credit card debt
  • Past due rent
  • Utility bills
  • Dishonored checks
  • Civil court judgment
  • Accounts from a collection agency

You might have noticed that the list doesn’t contain back taxes. Back taxes are generally considered to be non-dischargeable debts along with the other ones like alimony, student loan, or child support. As there are several factors involved in back taxes or tax debts, it is not possible to eliminate them. You need to know that there are some debts that need to be paid regardless of the financial situation of the debtor. For example, payroll taxes are this kind of debt that gets cut off from your wages by your employer. For more information on tax liability, you need to talk to the Pittsburgh bankruptcy lawyer.

Dischargeable Tax Debts for Chapter 13 and Chapter 7 Bankruptcy

If you want your tax debts to be dischargeable, there are some criteria that you need to know about.

First of all, the tax liability you have must not be the result of any fraudulent activity. As per the definition of IRS, fraud is a deception by misinterpretation of material facts or staying silent when good faith needs expression which might be the result of material damage for others. Simply put, fraud happens when the taxpayer dodges the payment of tax with fraudulent intent.

Secondly, you must file tax returns. Even if you didn’t pay the taxes you need to file tax for at least two years before filing for bankruptcy. IRS is more concerned about the failure to file rather than the failure to pay.

Furthermore, for the tax to be dischargeable, it should be at least three years old. This means that the back taxes of this year and the previous year won’t be counted as dischargeable debts.

Also, the debt has to be not only three years old but should pass the period of 240 days or 8 months time for income tax assessment after filing.

It is really overwhelming to understand the intricacies of tax and bankruptcy filing. So, if you are having a tough time taking care of it, then don’t worry. Come to Pittsburgh Bankruptcy Law Group and talk to our experienced Pittsburgh bankruptcy lawyer.

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