Tax Relief in Bankruptcy
Bankruptcy can provide relief from the tax man. Some
taxes and penalties are dischargeable;
those that can't be discharged can be paid without interest in Chapter 13.
stay in bankruptcy stops even collection actions by taxing authorities,
including garnishment and seizure. These provisions of the law apply
equally to state and federal tax agencies.
How much relief?
The precise measure of the relief available in bankruptcy depends on a number
of factors including
the kind of tax involved ,
the age of the tax,
whether a return was filed, and
the chapter of bankruptcy selected.
unsecured income taxes that were first due more than three years before
the bankruptcy is filed, for which a timely and non fraudulent return was
filed, can be discharged in full in any chapter of bankruptcy.
Offers in compromise
An offer in compromise may be a better solution when the priority tax (recent
taxes or trust fund taxes) is too large to pay off in a Chapter 13. The
IRS is now also under direction to consider offers in compromise from those with
pending bankruptcy cases.
Read a tax professional's assessment of offers
in compromise which historically could be made only outside
This is only a summary of the treatment of taxes in
bankruptcy. The effect of recent tax assessments, offers in compromise, and
amended returns have been omitted for simplicity. Be certain to bring
these issues to the attention of any bankruptcy lawyer you consult.