One of the many events delayed by Covid-19 this year was Tax Day. Normally due April 15, the filing deadline was pushed to July 15, which has since come and gone. But millions of Americans requested an extension, moving their due date to October 15.
If you are feeling overwhelmed by debt and are considering bankruptcy, you may be among the millions who filed for an extension. This is understandable, since thinking about money obligations of any kind can be stressful when in debt. In today’s post, we’ll discuss some basic information you should know about bankruptcy and tax obligations.
File Taxes Before Filing Bankruptcy
Whether or not tax debt is a problem for you, it will likely be necessary to file this year’s return (if you haven’t done so already) before filing for bankruptcy. If you don’t, your bankruptcy case could be impacted.
This doesn’t necessarily mean you need to pay all owed taxes immediately, but you do need to file. You should consult with your bankruptcy attorney before paying taxes if you are concerned about having the available funds to do so.
Are Tax Debts Included in Bankruptcy Relief?
As with everything related to the IRS, tax obligations in bankruptcy can be a bit confusing. The two options for personal bankruptcy are Chapter 7 and Chapter 13, and tax debts are more likely to be dischargeable when filing Chapter 7. That being said, there are no blanket guarantees.
You may be able to discharge federal income tax liabilities that are at least three years old – meaning the return was due three years before the date you filed. There are other conditions you must meet as well, including no evidence of fraud or willful tax evasion and a history of filing legitimate tax returns in the years leading up to bankruptcy.
Because conditions for tax debt discharge are so specific and context-dependent, you should really discuss your options with a bankruptcy attorney. Even if your tax obligations are not dischargeable, you may be in a better position to pay your taxes by discharging or reorganizing your other debts.