3 Tips For Dealing With Tax Debt During Bankruptcy

Many people find themselves facing mounting financial burdens. The loss of a job, a serious medical illness, or irresponsible credit card use can quickly lead to crippling debt. Bankruptcy is a viable option for people looking to wipe their financial slate clean.

If you owe the government for unpaid taxes, you may be wondering how these unpaid taxes will affect your bankruptcy case. The more you know about dealing with tax debt during a bankruptcy, the more prepared you will be to resolve your unpaid tax balances.

1. Identify the Type of Taxes Owed

Not all tax debts can be discharged in a bankruptcy case. You will need to determine the type of taxes that you owe before you can use bankruptcy as a tool to eliminate tax debt.

The only type of tax burden that can be alleviated by bankruptcy is income tax. If you have unpaid employment taxes, trust taxes, or sales taxes, these debts cannot be included in a bankruptcy.

Your attorney can help you communicate with the Internal Revenue Service to obtain a full record of your tax payments and balances. This record will prove which type of tax debt you owe and allow you to move forward with your bankruptcy.

2. Check for Errors on Your Tax Returns

It is critical that you supply accurate information when filing your tax returns. Not only are fraudulent tax returns illegal, but they can also prevent you from including unpaid tax debts in a future bankruptcy.

Your attorney will want to see copies of all tax returns from the years in which you were unable to pay. If any attempt to falsify information or evade paying taxes is discovered on these returns, you will not be able to include your tax debts in your bankruptcy filing.

3. Identify When Your Returns Were Filed

State law varies when it comes to the timeframe in which the return for tax debts included in a bankruptcy was filed.

Some states require that the returns were filed on time for each individual tax year. Other states only require that a return be filed within a certain time frame prior to filing bankruptcy.

Your attorney will be able to help you navigate both state and federal law when it comes to determining if your tax returns were filed within the acceptable timeframe so that you can include your unpaid tax debts in your bankruptcy case.