What Debts Are Not Dischargeable in Chapter 7?
While many unsecured debts can be included, the following types of debt cannot be discharged:
- Government Student Loans
- Child Support
- Alimony/Spousal Support
- Recent Taxes
- Court Ordered Fines
- Victim Restitution
Can IRS Debt Be Discharged in Chapter 7?
Most of your tax debts cannot be cleared in bankruptcy. Rather, you will still have these debts at the end of your Chapter 7 bankruptcy case. Under a Chapter 13 bankruptcy agreement, your IRS debts will need to be paid back in full, through your repayment plan.
If you want to discharge your tax debts, you will probably want to use Chapter 7. However, you should only use this option if you have debts that qualify for discharge, and you meet the criteria for eligibility.
Eliminating Tax Debt
Under Chapter 7, you can eliminate debts for federal income taxes if you meet the following qualifying criteria:
- Income Taxes: Taxes that aren’t counted as income, like payroll taxes or fraud penalties, are unable to be eliminated through bankruptcy.
- Fraud or Willful Evasion: Filing a fraudulent tax return or willfully trying to avoid paying taxes will disqualify you from discharging the debt in Chapter 7.
- Older Debts: To get rid of your tax debt, your tax return will need to have been first due to be filed at least three years prior to when you file. It must be for a return that was filed by you, not a substitute return by the IRS, at least 2 years prior to your bankruptcy filing date.
- 240-Day Rule: You will need to pass the "240-day rule" to qualify for tax debt relief. This means that your income tax debt has to have been assessed by the IRS at least 240 days before you file your bankruptcy petition. The time limit can be extended if the IRS stops collection because of a compromise offer or another bankruptcy filing.
- Tolling: These dates are subject to, and may be lengthened if you have been in negotiation with the IRS, or any offer and compromise period. There may be other tolling scenarios too.
How Do I Discharge a Federal Tax Lien?
Unfortunately, qualifying for Chapter 7 bankruptcy will not wipe out your prior recorded tax liens. This option eliminates your personal obligation to pay the debt and will keep the IRS from garnishing your bank account or wages. However, if the IRS recorded a tax lien on your property before you file for bankruptcy, the lien will stay on your property. This means you will need to pay off the tax lien if you wish to sell the property, or wait for the lien to expire.
Call a Chapter Bankruptcy Lawyer in Winter Park & Orlando at (407) 501-4052
If you are considering filing for bankruptcy, your monthly income and the types of debts you carry will determine which Chapter is right for you. If you're worried about how your credit will be affected, the good news is that we can explain how to start rebuilding your credit right away. Believe it or not, with discipline and applying a few credit rebuilding strategies, you can significantly improve your credit score long before the bankruptcy falls off your credit!