The first of the New Year seems like a perfect time to review some of the issues involved in bankruptcy and income taxes. As I have mentioned in an earlier blog, people often think that tax liability cannot be eliminated through bankruptcy.  The Bankruptcy Code does offer you considerable income tax relief. Whether or not filing bankruptcy will offer you such relief depends upon the specifics of your case, such as the type of bankruptcy you are filing, the nature and status of your tax liability.

Federal income tax is the only tax that is eligible for discharge. Bankruptcy offers no relief from: taxes which you were responsible for collecting from others, such as FICA withheld from employees; excise taxes such as estate and gift tax, sales tax, or fuel taxes.

The IRS is permitted to file a tax lien to perfect its tax claim against you. Once a tax lien is filed it becomes a secured lien on all of your property. If you have a tax lien in place before you file bankruptcy, the IRS’s secured tax lien takes priority over the bankruptcy filing. This means that bankruptcy cannot dislodge the lien from your property. Thus property that might otherwise be exempt in a bankruptcy case cannot be sold or transferred without payment of the IRS tax lien. In other words, in this case bankruptcy offers no tax relief.

In my next blog, I will clarify the instances in which bankruptcy does afford relief to you as it applies to your tax debts.  In the meantime, if you live in Denver, Aurora, Arvada, Brighton, Broomfield, Commerce City, Englewood, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, or Golden, Colorado, and have any questions contact me.

Kevin D. Heupel, Colorado bankruptcy attorney, 303-955-7570, COBankruptcyHelpEmail, or free-consultation form.