Most people do not know that some personal income taxes can be discharged in bankruptcy.
The rule is that personal income taxes can be discharged if:
- The tax return was due more than 3 years before the bankruptcy is filed. The 3-year period begins when the tax return was due. For example, in 2018 the tax return was due on April 17, 2019. Thus, the tax could be dischargeable by Monday, April 18, 2022. If you received a 6-month extension to file that year, or if there was a disaster or emergency and the government granted an extension, for example until October 17, 2019, the tax would not be dischargeable until October 18, 2022.
- The tax return was filed at least 2 years before the bankruptcy filing date.
- The tax return was assessed and there was not a substituted return filed by the IRS, and
- The tax return is not fraudulent.
If the tax cannot be discharged, then a chapter 13 can help because you can force a payment plan with 0% interest and no penalties added. This means every dollar you pay will go to pay down the principal of what you owe.
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