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Can Bankruptcy Wipe Out Back Taxes? Maybe – If the Time is Right

There can be some confusion about what is covered in bankruptcy and what cannot ever be wiped out. While much of the answer to this question will vary based on what type of bankruptcy you file, today we are going to talk about a specific type of debt: Tax debt. Keep reading to find out more about the topic and then contact The Law Offices of Paul Y. Lee at 888-748-0025 for a consultation with a bankruptcy attorney.

The Facts About Taxes and Bankruptcy

If you have back taxes that you want to include in bankruptcy then it is wise to know the rules pertaining to when they can be included. The key is when the taxes change from priority liens to non-priority claims. Once that happens, they have lost their protected status and can be discharged in bankruptcy proceedings. If you choose not to file bankruptcy, the government can collect taxes for a decade after the year of assessment.

There Are Three Rules That Govern the Discharge Date of Taxes

There are three bankruptcy rules that govern when taxes can be included in a bankruptcy discharge. First, there is the “three-year rule,” which states that taxes are not dischargeable until there years since the taxes were initially due. Any taxes newer than this are priority claims and are not dischargeable. This seems simple, but in some cases it can be rather complicated.

The main complication is that you will note that the date in question is the date that the taxes were due – not the date you filed your return. So if you filed your return in February, the three-year rule would still not begin until the taxes were actually due, which is April 15th in most years. Further, if you filed an extension then the three-year rule would not begin until the date the taxes were due after the extension.

The second rule in play is known as the “two-year rule.” It states that if the taxes were not filed on time, then they must have been on file for at least two years to be dischargeable. This is to prevent people from filing taxes only to discharge them. The third rule is the “240-day rule,” which involves taxes assessed within 240 days of the filing. They are not dischargeable – even if the other two rules are met.

Are You Confused by These Rules? We Can Help

These rules are complex and can be confusing. This is just one reason that it is worth it to work with a bankruptcy attorney. To learn more about your options, how we can help, and the likely results you will get, please contact The Law Offices of Paul Y. Lee at 888-748-0025.