When you are drowning in debt, bankruptcy often seems like the life raft you desperately need to get your finances back in order. However, it is crucial to understand that not all debts are eligible for discharge. Tax debts, for instance, operate under specific rules. While some tax obligations may be eliminated through bankruptcy, others will persist even after the process is complete. If you are considering filing in Ohio, understanding exactly when you can ditch those tax obligations is key to determining whether bankruptcy is the right debt relief strategy given the unique circumstances of your situation. Please continue reading and contact our experienced Franklin County Bankruptcy Lawyers to learn what we can do for you during these difficult times.
Why Are Tax Debts Treated Differently?
Bankruptcy proceedings involve a unique approach when it comes to managing tax liabilities. Although bankruptcy aims to provide debtors with a much-needed “fresh start” by eliminating most unsecured debts, it is structured to ensure that certain government entities, like the Internal Revenue Service (IRS), are repaid for unpaid tax obligations. Tax debts are generally classified as nondischargeable priority debts, meaning they are paid before any unsecured creditors.
Given the distinctive nature, special consideration is necessary under federal bankruptcy laws. These laws outline strict criteria to determine whether certain types of tax debts are eligible for discharge.
Are Your Ohio Tax Debts Eligible for Discharge?
As you can see, discharging tax debt through bankruptcy is a complex undertaking, but it can offer significant relief, particularly for certain types of income tax liabilities. Federal and state income taxes may qualify for discharge, provided they meet a strict set of conditions often referred to as the “Three-Year, Two-Year, and 240-Day Rules.”
The tax return related to the debt must have been due at least three years before the bankruptcy filing, the return itself must have been filed at least two years prior, and the tax must have been assessed by the RIS at least 240 days before the case began. It should be noted that not alltax debts are eligible to be wiped out. Debts involving fraud, willful tax evasion, or taxes like payroll taxes are normally not dischargeable under any circumstances. Therefore, a successful discharge depends entirely on the type of tax, its age, and your history of honest filing.
Which Bankruptcy Chapter Should I Choose for Tax Debt?
Bankruptcy chapters offer distinct approaches to managing tax debts. Chapter 7, or liquidation bankruptcy, offers the potential to eliminate qualifying obligations upon discharge, although some debts will remain non-dischargeable. Chapter 13, conversely, establishes a court-approved, structured repayment plan. This plan enables debtors to manage and repay specific tax debts over a set period (typically 3-5 years), with the added benefit of discharging other tax debts once the case is finalized.
Contrary to belief, certain income tax debts may be dischargeable in bankruptcy. At Cousino & Weinzimmer, LLC, we are prepared to help you determine whether bankruptcy is the right path for relief from certain tax liabilities. Connect with our firm today to schedule a consultation.
