Can Tax Debt Be Discharged In A Chapter 7 Bankruptcy? |Bankruptcy Tax Lawyer
November 15, 2017
Many tax debts cannot be discharged in a Chapter 7 bankruptcy case, but some tax debts can be wiped out in a Chapter 7 bankruptcy case. The very general rule – and this is a general rule so be careful about the exceptions – is that the tax debt is not dischargeable if it is less than three years old (the calculation of the age of the tax debt itself is a tricky thing to do because it involves measuring the due date of the return and subtracting any tolling periods such as offers in compromise, audits, etc.), the return for that tax debt was filed less than two years ago, or the tax debt was assessed less than 240 days before the Chapter 7 bankruptcy case is filed.
If the debt is older than three years (measured from due date which is usually April 15 but could be in October if you filed late) minus any tolling periods, and you filed your return for that tax debt at least two years before your Chapter 7 bankruptcy case, and the Internal Revenue Service or state revenue service did not assess the tax within 240 days of the Chapter 7 bankruptcy filing date, you may be able to get rid of that tax debt in your Chapter 7 bankruptcy case. Determining whether a tax debt is dischargeable is a very complicated analysis and must be performed by an experienced, competent bankruptcy attorney. Entire books have been written just on the subject of which tax debts can be discharged.
At Thomas Law Office, you will find in Mr. Thomas an attorney who is very qualified to carefully analyze your tax debt to make sure you can get rid of it. Mr. Thomas has studied tax discharge law in very great detail. As an example of a debt that may be dischargeable, let’s assume that you have an old tax debt – let’s say 5 years old – and you filed your return on time and you did not attempt to evade the debt and none of the other factors (that would prevent the tax from being discharged and that have not been listed here because they are too numerous) are present, you should be able to wipe out that tax debt in your Chapter 7 case.
However, it is often wise to contact the Internal Revenue Service to make sure they agree that it is discharged in the Chapter 7 case, because if they refuse to admit that it has been discharged, it is often a good idea to file an adversary proceeding to eliminate any doubt about whether that particular tax debt has been discharged in your Chapter 7 bankruptcy case. When all Chapter 7 bankruptcy cases close, the judge issues a generic discharge order that essentially says “whatever debts that legally can be discharged have been discharged.” The problem with that generic order is that it does not specifically list which debts have been erased and which ones you will be stuck with after the Chapter 7 case is over.
What you want to avoid is a situation where you file your bankruptcy on an old tax debt, assume it has been wiped out, and then years later the Internal Revenue Service comes after you hard for that tax debt. You will then have to fight with the Internal Revenue Service at an unexpected time, and that time may not be very convenient for you. You may live in a different state and need to travel back to Arizona to fight the issue in bankruptcy court. You may be very busy and not have time to engage in a litigation battle with the Internal Revenue Service over that particular tax debt.
You may have wrongfully assumed the tax debt was dischargeable and you may have accumulated some assets that will now be seized at a very inconvenient time for you. The point is to have the battle on your turf, at a time that you can control. The discharge of tax debs is a complicated subject, and nobody should ever file a Chapter 7 bankruptcy without a careful tax debt discharge analysis by a good Chapter 7 bankruptcy attorney. Call Thomas Law Office today for your tax debt discharge analysis.
How Does Filing For Bankruptcy Impact A Co-Signor On the Loan?
If a person files for Chapter 7 bankruptcy protection and they have a co-signor on a loan, the co-signer can be pursued for the debt that the Chapter 7 bankruptcy debtor is no longer responsible for. Obviously, if the co-signor is a spouse and the spouse also filed for Chapter 7 bankruptcy protection, the spouse’s obligation is also discharged (erased) in the Chapter 7 bankruptcy case. In Arizona, a community property state, if one spouse files for Chapter 7 bankruptcy protection but the other spouse for whatever reason does not also join in that Chapter 7 bankruptcy or file his or her own Chapter 7 bankruptcy, the non-filing spouse in Arizona may have some protection for a period of time.
Generally, the non-filing spouse will be protected by the Arizona filing-spouse for so long as they continue to be married or if the filing spouse predeceases the non-filing spouse. Again, as always, there are exceptions to this rule so you should never rely on the information you read here or anywhere else unless you also obtain a full bankruptcy consultation in which the attorney can carefully analyze your situation to determine whether any exceptions apply that would prevent you from exercising the benefit of this general rule. But with regard to co-signors who are not also your spouse, you should let that person know about the situation so they can plan for the inevitable calls and letters from the creditor if that loan they co-signed on stops being paid.
The co-signor may be able to work out a compromise or settlement with the creditor. One of the things we assist clients with here at Thomas Law Office is settling debts privately with creditors for those people that do not want to file for Chapter 7 bankruptcy protection or who are probably not good candidates for Chapter 7 bankruptcy protection. Keep in mind that there could be tax consequences when you settle a debt rather than discharge it in a Chapter 7 bankruptcy case. This is because the creditor will probably send you a 1099 form at the end of the tax year with regard to the portion of the debt that the creditor waived.
That portion of the debt that was waived by the creditor could be deemed income to you for income tax purposes. This is why we often check with the client’s CPA to find out the tax consequences of a settlement before the client finalizes the deal. Another possibility is for the co-signor to also file for Chapter 7 bankruptcy protection if that person independently qualifies for Chapter 7 bankruptcy relief.
For more information on Discharging Tax Debt In Arizona, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.
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