How to Discharge Old Tax Debt in Bankruptcy

  Many people do not realize that some types of tax debt can be eliminated by the Knoxville bankruptcy court as the bankruptcy laws do provide for the discharge of stale tax debt.  Your tax debt will not be discharged if you did not file a return for a particular tax year - click to learn how to solve the problem of unfiled tax returns.

  Here is what you need to know about discharging tax debt:

  Whenever you file a bankruptcy the Internal Revenue Service receives a notification.  The Tennessee Department of Revenue may also get notice (we suggest that you include both the IRS and the Tennessee Department of Revenue on your list of creditors so that both will get formal notice of your bankruptcy case.  Any tax debt you owe will thereafter fall into one of three categories:

Priority debt category - tax debt is considered priority if it came due within the past few years.  Tax debt must be at least three years old before it could possibly fall outside the priority category.  If your tax debt is considered a priority debt, it will survive your Chapter 7 discharge.  In a Chapter, priority tax debt must be paid in full in your plan or in some cases you can pay it directly to the IRS outside of your plan.

Secured debt category - tax debt is considered secured if the IRS has filed a tax lien.  You may not always know if the IRS has filed a tax lien, so you will want to ask your Clark and Washington lawyer to help you find out.  The IRS files tax liens when it has been unsuccessful in collecting tax debt from you, and they want to pursue collection by putting a lien on your house or levying against your wages.  Neither Chapter nor Chapter 13 can eliminate a tax lien.

Unsecured debt category - old tax debt (taxes that came due more than 3 years ago) may fall into the classification of “stale” unsecured tax debt.  Stale tax debt may be discharged like any unsecured credit card or medical bill.

   There are many factors that determine whether your tax debt can be discharged.  First, you can only discharge taxes that came due more than 3 years ago.

Example: Tom filed his tax return on April 12, 2004.  If he files bankruptcy on April 16, 2007, he would meet the three year rule.  If he files on April 14, 2007, he would not.

   Second, if your taxes came due more than 3 years ago, but you filed late, you can only discharge the tax debt if your return was filed more than 2 years ago.

Example: Mary did not file her 1999 return on time.  She filed it on July 30, 2004.  Mary must wait until July 31, 2006 before she can discharge the 1999 taxes.

If you are receiving letters from the IRS and you have unpaid tax debts, please do not hesitate calling our office for assistance.


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Clark and Washington Bankruptcy Attorneys, 2606 Greenway Dr., Suite 105-640, N. Building, Knoxville, TN 37918 - Call: 865-977-0121