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Bankruptcy and Back Taxes

Have you found yourself in a situation where you owe unpaid income taxes to the IRS? Is the IRS using aggressive efforts to collect back taxes from you? If you are stressed and feeling overwhelmed because you have substantial tax debt, then filing for Chapter 7 bankruptcy might be the solution to put a stop to IRS collection actions.

When the IRS sends out legal notices to debtors for back taxes, they will sometimes file a lien, seize bank accounts, or garnish wages. However, when you file for Chapter 7 bankruptcy, the court will issue an automatic stay that will pause such actions and prevent creditors and the IRS from contacting you to collect debts. As soon as you file the bankruptcy petition, the automatic stay usually goes into effect.

The automatic stay also covers your property. Although most personal property is exempt during a Chapter 7 bankruptcy, the IRS and other debt collectors can't come after your valuable assets while the automatic stay is valid.

An automatic stay is one of the most powerful tools that debtors have to protect themselves from creditors and the IRS. The automatic stay will stop IRS collection efforts immediately, no matter what stage of the process they are in. It stops all forms of communication between debtors and creditors and establishes serious consequences if the order is violated.

Can I Discharge Back Taxes in Bankruptcy?

Under a Chapter 7 bankruptcy, you can only discharge your income tax debt. So while 1040 taxes count as income taxes, property and trust fund taxes are not considered dischargeable income taxes. You must have filed your tax returns for the past two years, and your tax returns for the debt you want to discharge must be on file for at least two years when you file your bankruptcy petition.

Your income tax debt must also be at least three years old and your tax assessment can't be more than eight months old. If the IRS hasn’t assessed the debt in the past 240 days, then your income tax debt is not eligible to be discharged through bankruptcy. Although it is difficult to determine if the IRS has assessed your debt or not because the process is conducted internally, generally, if you haven’t received a bill that breaks down the amount you owe by tax years, then the IRS has probably not assessed the debt.

Our Bankruptcy Team Is Here To Guide You

At Blake Goodman, PC, Attorney, we are committed to helping clients all across Hawaii find the right path to financial freedom. Our compassionate legal team understands that managing debt can be frightening, which is why we proudly assist clients of all backgrounds who need help obtaining a fresh start through bankruptcy. If you want to end collection calls and get your financial affairs in order, then please reach out to Blake Goodman, PC, Attorney today.

To get in touch with our experienced bankruptcy team so we can explore all of your options, please call (808) 518-4844 or fill out our convenient online form. Request your consultation today!

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