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Tax Debt in a Chapter 7 Bankruptcy

Bankruptcy can help with some tax debt but not all of it. For those that are going into a Chapter 7 bankruptcy, the tax debt that can be discharged is only that which is income based and applies to federal or state taxes or gross receipt taxes.

There are also special rules concerning the discharge of this type of tax debt. The amount owed must have been from at least three years in the past. You also must have filed your tax return at least two years ago. The tax department does assessments and in order for this debt to be included in your bankruptcy the assessment must have taken place at least 240 days previously. It must also be shown that you are not intending to commit fraud or are purposely trying to evade paying your taxes.

Many people have non-income related tax debts that they are not able to deal with, and sometimes assume that the Chapter 7 bankruptcy will tend to these is well, which is not the case. For example, if you have a property tax in place that you owed before you filed for your bankruptcy then this will not be discharged. This is within the last year, but if you are personally liable for property taxes that took place a year before your bankruptcy that were payable with no penalty, then you may be able to get this discharged. You have to be cautious to see if any liens have been placed against your property, however.

You may not be able to discharge employment taxes as well as custom duties or excise taxes. The best thing to do is to seek out the advice of a qualified New Albany bankruptcy attorney regarding your specific tax debts and how they would be handled in a bankruptcy.

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