Bankruptcy Might Discharge Some Tax Debts Under Narrow Conditions

Grand Law Firm

Bankruptcy might offer relief to people overwhelmed by multiple debts in Louisiana, but tax debts often do not qualify for discharge. Bankruptcy laws, however, contain numerous exceptions to general rules, and certain circumstances could make the discharge of a tax debt possible.

Timing matters a great deal. People cannot toss current tax bills into their bankruptcy filings. In general, a tax debt needs to be documented on tax returns that are at least two or three years old. A tax bill assessed a minimum of 240 days before a bankruptcy filing might also qualify for discharge. Any taxes that arose from the filing of fraudulent or frivolous tax returns will not meet requirements for discharge.

Bankruptcy law specifically states that obligations to pay withholding taxes, also known as trust fund taxes, cannot be eliminated. Taxes owed for years in which people did not file tax returns will remain in effect. The filing of late returns might meet deadlines for consideration during a bankruptcy as long as the filing occurred more than two years before seeking bankruptcy protection.

Different rules may apply to property or excise taxes and tax penalties, and tax liens also influence bankruptcy decisions. For an individual struggling with debts that include tax debts, the advice of an attorney or tax accountant may provide specific guidance. An attorney may research which debts qualify for discharge and which assets might be protected from creditors.

If filing for Chapter 13 bankruptcy appears to be a viable course of action, then an attorney may be able to organize financial disclosures for a person and prepare court filings. As the case proceeds, an attorney may help manage any disputes that might arise with creditors and urge the court to approve the payment plan submitted by the debtor.