Attorney at Law
Will My Taxes Be Eliminated by Bankruptcy?
Most of the time income taxes are not eliminated by bankruptcy, and property taxes never are. Property taxes attach to the property you own as a lien and there is no way to use bankruptcy to eliminate that lien. Income taxes are only eliminated by bankruptcy when BOTH of the following conditions are true:
· The taxes you are trying to eliminate are at least 3 years old
· You filed your income tax return on time for the tax year you are trying to eliminate
Unfortunately, many people who owe taxes do not file their income tax returns until well after the filing deadline, meaning that those taxes become permanent and can never be eliminated by bankruptcy. There is no way to go back and fix that problem. Furthermore, most of my clients who have tax problems owe taxes from recent years, not from 3 or more years ago. This is because the IRS is good at getting paid and most of the time will figure out a way to get paid before your tax debts become 3 or more years old. For instance, if you are entitled to a tax refund the IRS will seize it and pay off your balance, so most tax debts do not have a chance to get 3 or more years old.
From time to time I see clients who will be able to eliminate their tax debts if they strategically wait to file bankruptcy until their taxes are at least 3 years old. If you could benefit from such a strategy then it is certainly something we should discuss. One issue we might run into, however, is if you have other creditors suing you who are likely to come after your wages, bank account and other assets. Sometimes you are between a rock and a hard place and have to file bankruptcy to stop imminent collection activity. Thus, you might not have the luxury of waiting until your tax debts are 3 or more years old.