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Does Filing Bankruptcy Relieve Any Tax Debt?

How filing bankruptcy affects tax debts varies greatly from case to case and depends on individual circumstances, the type of bankruptcy filed, and court decisions.

However, in all bankruptcies, one factor never changes.  The only tax debt that bankruptcy may provide relief for is income tax debt.

If the IRS has not filed a lien on all your property, you may be able to obtain tax relief in a Chapter 7.  However, when the IRS files tax liens prior to bankruptcy, their liens turn the IRS debt into a secured debt.  This means that even if you have exempt equity in your home, and you claim a state or federal homestead exemption, the IRS can seize the home to satisfy its debt because of their lien.

Bankruptcy has the purpose of reducing and making debts manageable for debtors.  Therefore, some tax relief is possible.  United States Code (USC) Title 11, Chapter 5, Subchapter II, § 523 enables you to get tax relief for old overdue taxes—taxes from taxes due three years prior to the bankruptcy filing date in some circumstances.

You cannot discharge taxes assessed by the IRS within 240 days prior to filing bankruptcy, but you can with taxes assessed later than 240 days.

When your taxes are dischargeable, the bankruptcy court treats the IRS in the same way it treats other unsecured debtors in a Chapter 13, and it discharges the tax debts in the same way it discharges other unsecured debts in Chapter 7.

Also, there may be actions and strategies your bankruptcy lawyer can take that influence whether you have to pay tax debt or how much tax debt you end up owing.

Your bankruptcy lawyer may be able to negotiate with the IRS about taxes owed, or work with you to reduce the taxable value of your personal assets.

Work with an experienced bankruptcy lawyer to find out about your ability to obtain tax relief.

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