If you have more debt than you can reasonably pay, you may be ready to explore your bankruptcy options. It’s important to know what kind of debt can be cleared during this process. When you have a lot of tax debt, some can be cleared and some cannot. A Montgomery County bankruptcy lawyer can tell you more about how the bankruptcy process works and when it can be helpful for anyone with a significant tax debt.

What Kind of Tax Debt Can Be Cleared Through Bankruptcy?

In most cases, only federal or state income tax can be addressed through bankruptcy. If you owe penalties for any reason, those are unlikely to be washed away just because you filed for bankruptcy.

We should also note that a tax lien won’t get eliminated just because you went through bankruptcy. If the state or federal government put a lien on your home because you owe them money, that lien would still need to be paid off after your bankruptcy. Selling a property with a tax lien on it is not an option.

What Are Some Rules About Tax Debt and Bankruptcy?

It’s also important to note that there are some other rules about what kind of tax debt can be forgiven during a bankruptcy. You also need to have followed the rules and the law before asking for such a liability to be discharged. Your debt cannot be discharged if:

  • It’s newer than three years old
  • You did not file a tax return at least two years before filing for bankruptcy
  • It has not been assessed by the IRS for 240 days or more
  • You willfully avoided paying taxes or tried to file a fraudulent tax return

Our lawyers can help you figure out if your tax debt meets the requirements.

Can I Clear a Tax Debt if I Claim Undue Hardship?

If you really cannot pay your tax debt, you may be able to claim undue hardship. This can get you out of many different types of debt, including some that are rarely eligible for discharge through bankruptcy. A good example of this is student loan debt. A claim of undue hardship is often the only way to get that debt discharged.

Such a claim can sometimes work for additional tax debt as well. However, we should note that there is a high burden of proof for this. Just saying that it’s kind of tough to pay your debt is not enough for the court.

Contact Our Bankruptcy Attorneys

When you are ready to learn more about bankruptcy and how it could be used to deal with a tax debt, contact Mudrick & Zucker. We can schedule a consultation for you and take a closer look at your situation. If you’re a good candidate for bankruptcy, then we can guide you through the process.