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Bankruptcy Help For Everyday People

How to eliminate tax debt through bankruptcy

| Oct 13, 2020 | Chapter 7 Bankruptcy |

If you owe money to the IRS, they can take steps such as garnishing your wages or putting liens on your property. However, it may be possible to put a stop to IRS harassment by filing for Chapter 7 bankruptcy. As soon as a North Carolina court receives your petition, you will be given an automatic stay that generally remains in effect for the duration of your case.

The benefits of the automatic stay

When the stay goes into effect, the IRS will no longer be able to garnish your wages or put liens on your property. In fact, the government is typically unable to contact you by mail about your outstanding tax debt. However, while the federal tax agency is unable to get in touch with you, you are welcome to start negotiating a deal to pay back or otherwise eliminate an outstanding debt balance.

How do you know if a tax debt can be discharged?

It is important to note that only income taxes are allowed to be discharged in a bankruptcy proceeding. Furthermore, the debt balance itself must be at least three years old and must have been assessed within the past 240 days. Finally, you must have filed a federal return in each of the previous two years if you were required to do so.

The process of discharging an income tax debt

During the bankruptcy proceeding, an outstanding income tax balance is considered to be an unsecured priority debt. The judge in your case has the power to eliminate the debt assuming that it meets the criteria to be discharged. Prior to discharge, the trustee overseeing the matter will conduct an interview to confirm your identity and to ask questions about information submitted to the court.

If you have outstanding tax or other debt balances, it may be in your best interest to file for bankruptcy. A bankruptcy law professional may be able to help you file your petition or represent your interests during court proceedings.