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Can tax debt be eliminated by filing bankruptcy?


For a variety of reasons, some residents of Louisville will find themselves facing trouble with tax debt. In some cases, there could have been an honest mistake or surprise with respect to what one's tax obligation was, while in other cases, back taxes could just be a symptom of one's overall poor financial health.

Whatever the reason, Kentuckians should take comfort to know that, under certain limited circumstances, tax debts can be discharged via a Chapter 7 bankruptcy, as can late fees and other penalties associated with these dischargeable tax debts.

Generally speaking, only taxes like income taxes and property taxes are subject to discharge. If an employer owes payroll taxes, he or she will be expected to pay those. Moreover, a discharge for taxes is only for honest debtors; those who have tried to avoid paying taxes illegally or who did not file a return as required should not expect a discharge.

The rules that may be more likely to affect typical Kentucky families are that certain periods of time must have elapsed before a tax debt can be discharged. For instance, the Internal Revenue Service is given about eight months to try and collect before a person can file bankruptcy on the tax debt.

Moreover, as is the case with some other types of liens, a lien on property for taxes will survive a Chapter 7 bankruptcy, even if the debt itself gets discharged.

Options for how to resolve tax debts are probably best discussed with a qualified debt relief attorney who has experience in this area, but generally speaking, Kentuckians should remember that bankruptcy can be an option for resolving back taxes.

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