Bankruptcy Taxes Kentucky Foreclosures Liens

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The rule changes for bankrupting taxes and liens after October 2005.  Are you sure you can't bankrupt Taxes?   Does your attorney know how to bankrupt Taxes?   Keep property from tax liens and foreclosures by filing Bankruptcy!

So you thought you couldn't bankrupt taxes?  Filing a Chapter 7 can erase taxes.  Income taxes can be discharged in a Chapter 7 bankruptcy without paying them but only if all of the income tax code rules are met.  This is how to do it. 

 1. First you have to file the return.  The return for the taxes must be filed at least two years ago for income taxes for a tax year at least three years ago.  As an example in 2005 the taxes for year 2002 will be bankruptable.  The taxes must be due at least three years before you file for bankruptcy. This normally means April 15 of the year the tax return was due. If you filed an extension, then it means August 15 or October 15 of that year, or your actual filing date if that is later.  If the 15th falls on a Saturday or Sunday, the return wasn't due until a following Monday. The return must also have been filed at least two years before the bankruptcy.  If the IRS files a substitute tax return for your tax return the time never starts to run until you do file a return for the taxes.

2.  Taxes other than income, such as payroll taxes, a 100% penalty, Trust Fund Recovery penalty, fraud penalty, or several other unusual types of taxes are by law excepted from bankruptcy discharge unless they are paid in a Chapter 13.   Income taxes can be repaid in a Chapter 13 bankruptcy as low as 10 cents on the dollar.   Taxes properly filed over 3 years old are treated the same as any other unsecured debt.  Taxes do not have to be paid in full in a Chapter 13.

3. The taxes must have been assessed over 240 days ago.  Therefore taxes are bankruptable if you filed a return at least two years ago but the IRS made an assessment no less than for taxes 8 months ago.  

4. In order to bankrupt your taxes and not lose property the taxes must be unsecured or your equity in the property must not exceed your exemptions in the property.

5. No discharge for fraud tax returns and willful evasion.

6. Any limitation on time allowed to the IRS to collect such as non filing of a return, an offer in compromise or Chapter 13 bankruptcy, "tolls," or extends the "3-Year Rule" past April 15th of the third year after the return was due. The time rules (3-Year, 2-Year and 240-Day) are extended by the period of any or delay plus an additional 6 months. If you file an Offer in Compromise, the 240-Day period is extended by the period it is under IRS consideration, plus 30 days.  For more information download our manual

The Bankruptcy Manual discusses how to bankrupt taxes.  Download your free copy.

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