As I promised in last week’s blog, I am going to continue to review some of the relevant information regarding bankruptcy and income taxes. This will be no more than a summary of the issue since the concerns involved can be complex.
Let’s first look at Chapter 7 bankruptcy and the tax relief that it affords you. There are five factors considered when determining whether or not your taxes can be eliminated via a Chapter 7 bankruptcy case. If your taxes fall into any of the following five categories then they may not be discharged: One involves any taxes for which a return was due to be filed within three years before the date of filing bankruptcy. For instance, the tax return for 2002 income taxes was due to be filed by April 15, 2003, and thus, these income taxes cannot be discharged by filing bankruptcy on or before April 15, 2006; or, second, any taxes determined by the IRS within 240 days prior to filing bankruptcy. The assessment date is whatever date that tax liability is recorded on IRS records; or, third, any taxes not yet assessed but still assessable; or fourth, any taxes for which a return was filed late and filed within two years before filing bankruptcy; or, fifth, any taxes of a debtor who is charged with committing fraud related to filing a return or who willfully tried to evade taxes attempted to be discharged. If your income tax does not apply to any of the above categories then your taxes will be completely eliminated via Chapter 7 bankruptcy.
Whereas in a Chapter 13 bankruptcy case, any taxes which are non-dischargeable will be considered priority debts and must be paid in full during the Chapter 13 plan. But the good news is there will be no interest charged. Dischargeable taxes are treated as general, unsecured creditors in Chapter 13 bankruptcy, and are eliminated in Chapter 7 bankruptcy. The secured portion of tax liability must be paid during a Chapter 13 bankruptcy, in full and with interest, but without further penalty. As for Chapter 7 bankruptcy, secured tax liens cannot be discharged.
As you can see, some of the issues involved with income tax and bankruptcy are complicated. If you are dealing with income tax debt and live in Denver, Aurora, Arvada, Brighton, Broomfield, Commerce City, Englewood, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Golden, Colorado, or any of the surrounding areas, you may well want to contact me. Please feel free to do so.
Kevin D. Heupel, Colorado bankruptcy attorney, 303-955-7570, COBankruptcyHelpEmail, or free-consultation form.
