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Can you discharge your tax debt during bankruptcy?

On Behalf of | Mar 8, 2019 | Firm News

Most people dread tax season. It’s the time of year where most adults have to collect every financial detail from the past year and see what they owe to the government. Some people are lucky enough to receive refunds, but it’s not always the case.

Many times, the Internal Revenue Service (IRS) will ask you to pay your taxes upfront. However, if you are currently dealing with a costly divorce, student loans or expensive medical bills, it’s not a reasonable request to pay all your taxes immediately.

Discharging debt – especially taxes

Luckily, some tax debts are eligible for “discharge” during bankruptcy; it releases you from personal liability for specific debts. Generally, tax debts that are less than three years old are dischargeable during bankruptcy. It also takes away any additional penalties or interest associated with the tax debt.

However, it’s crucial to note how this changes if you receive a tax refund. If you are a Chapter 13 bankruptcy recipient, your return may be divided up by the IRS to relieve some tax debt and give you some of your initial funds.

There’s also a possibility of the refund getting delayed, so participants should contact the IRS will any questions about the status of their specific tax return.

Even though there is a possibility for a reduced refund, most bankruptcy participants will receive a refund if they are eligible on their tax returns. It goes on a case-by-case basis, so consult with the IRS or a trusted accountant before filing any returns this tax season.