Bankruptcy and Taxes

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Believe it or not, not everyone gets a tax refund every year. Oftentimes, unexpected tax liabilities occur due to early withdrawals of retirement funds, unexpected income, miscalculation of tax withholding throughout the tax year, or a buildup of several years of not filing a tax return due to fear of not being able to pay whatever amount becomes due. Alas, if you are in this situation, you do not have to fear filing the appropriate tax returns and you do not have to fear the IRS or other taxing authorities because you are unable to pay back taxes. Filing a bankruptcy can not only give you a second chance with your debts, but it can also give you a second chance with your tax situation—you can finally get all of your tax returns filed now, make favorable arrangements to pay any amounts due in bankruptcy, and most importantly, you will not be in “trouble.”

Do you Owe any Tax Amounts for Tax Years Over 3 Years Old?

As a general rule, you cannot discharge or eliminate taxes in a bankruptcy. However, taxes that have been assessed and are now over 3 years old CAN be discharged in bankruptcy and will not have to be paid. You should contact our office as soon as possible to determine if you qualify for this benefit.

Do You Owe any Tax Amounts for Tax Years Under 3 Years Old?

Bankruptcy can still provide you with significant benefits to pay your taxes if they are less than 3 years old or if you otherwise do not qualify to have taxes over 3 years old discharged. By filing a Chapter 13 bankruptcy, any tax that cannot be discharged can be paid over a 36 to 60 month time period interest and penalty free. Bankruptcy makes it significantly easier and more manageable to repay past due taxes without the extraordinarily high penalties and interest charged by the IRS. Again, you should speak to a bankruptcy attorney about these benefits and how they apply in your particular situation.

General Information Regarding Taxes

• Real estate taxes are excluded from the benefits discussed above.

• Sometimes past due taxes that cannot be discharged are so significant that you should consider another option called an offer and compromise. Our office does not represent clients in an offer and compromise, but it is important to coordinate submitting any such request with a possible bankruptcy filing. By meeting with us we can discuss this option with you, refer you to someone who has represented our clients and coordinate any bankruptcy filing, if bankruptcy is still necessary to resolve other debts.

• Bankruptcy laws require all prior tax returns to have been filed, and in a strange way this is good news. We have represented many clients who, for one reason or another, have not filed tax returns for the last 5 to 10 years. Now, with the filing of a bankruptcy you can correct your prior tax return history, eliminate your other debts, and get a true second chance!

• Link to IRS website: www.irs.gov.

• Link to Illinois Department of Revenue website: www.revenue.state.il.us.

• Link to Missouri Department of Revenue website: www.dor.mo.gov.


Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.

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