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Discharging tax debt through Chapter 7

If you're hoping to use a Chapter 7 bankruptcy to discharge tax debt, there's good news and complicated news. The good news is that discharging tax debt is possible through a Chapter 7 bankruptcy (or a Chapter 13 bankruptcy, to a lesser extent). The complicated news is that the matter is, well, complicated. While some types of tax debt are dischargeable, not all tax debt is dischargeable, and certain actions by the Internal Revenue Service (IRS) can place additional restrictions on how you liquidate assets.

In order to meet the qualifications for discharging tax debt through a Chapter 7, the debt must satisfy several standards. Only income taxes can be discharged, in general. Tax discharges are not generally available for tax penalties, payroll taxes or other types of tax debt.

Furthermore, the tax debt must be at least three years old, and the debtor must have filed proper tax returns. If the debtor committed tax evasion, then a discharge is highly unlikely, and the same goes for tax fraud.

Furthermore, if you wish to liquidate property that the IRS has placed under a federal lien, the bankruptcy does not dissolve the lien. You must first clear the lien on the property before you can successfully liquidate it under Chapter 7.

If you have questions about your tax debt's eligibility for discharge through a Chapter 7 bankruptcy, an experienced bankruptcy attorney can help you explore your options. Each person's circumstances require personal attention to ensure that a bankruptcy procedure can achieve maximum efficiency and truly give you a fresh start in your financial life.

Source: Findlaw, "Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy," accessed Aug. 04, 2017

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