Does Filing Bankruptcy Take Care of My State and Federal Debts?
Filing for bankruptcy is often the best option if you are incapable of paying back your debt. However, when it comes to your state and federal debts, it can be tricky. If your tax debts are troubling you and you’re considering bankruptcy, it’s important to know when you can discharge this type of debt.
Generally speaking, Chapter 7 bankruptcy is the better option for discharging state and federal tax debt. At the same time, you must meet certain criteria in order to do that. All of the following must be in place:
• The tax is related to income: You can only discharge federal and state debt if it encompasses your income taxes.
• There’s no tax evasion or fraud: If you did not file a fraudulent tax return or deliberately evade paying your taxes, bankruptcy is an option for you.
• The debt is three years old: You must have debt that is at least three years old in order for bankruptcy to help you.
• You filed a tax return: The debt in question must have been included on a tax return you filed at least two years prior to filing bankruptcy. If you did not file a return for the debt in question, the court will not allow you to discharge it through Chapter 7 bankruptcy.
• You can pass the 240-day rule: If the IRS assessed the tax debt prior to 240 before you file for bankruptcy, you can discharge the state and federal debt through Chapter 7.
You should note that you cannot discharge any federal tax that has a lien on it. While Chapter 7 bankruptcy will eliminate the requirement of you paying back the tax debt and prevent the Internal Revenue Service from turning to your bank account or salary to cover the debt, if there was a lien on your property before you filed, it will stay in place. It means you must pay off the lien to sell the property.
If you live in Virginia and owe federal and state tax debts, you need Canfield Wells LLP, to help. You can speak with bankruptcy attorneys in Henrico and prepare a petition for Chapter 7 bankruptcy. Contact Henrico VA bankruptcy law firm Canfield Wells LLP to schedule your consultation.