Tax debt can be crippling, especially when partnered with other types of debt. To get rid of debt, many people file for bankruptcy and work with the court to make payment plans or have their debt discharged and eventually removed from their credit history. Tax debts however, are one type of debt that is more complex, and depending on the type of bankruptcy you file, may or may not be discharged.
When filing for bankruptcy, it is not required to file through a tax debt attorney, but doing so can offer you a clearer process to discharge and someone to answer any questions you may have.
To discharge tax debt of any kind under Chapter 7 bankruptcy, it first has to be at least two years old and filed properly. The only taxes that are eligible for discharge under Chapter 7 are income taxes. Income taxes can be discharged if deemed eligible by the court for your individual case.
To clear tax debt under Chapter 13 bankruptcy, you must have filed taxes correctly and fully, and the debt must also be at least two years old. Most income taxes are eligible to be discharged through the three to five year repayment plans used in Chapter 13 bankruptcy filings. Any non-dischargeable tax debt, such as more recent tax debt, must still be paid in full.
After filing for bankruptcy, you will still file your taxes like anyone else. Depending on the type of bankruptcy you filed however, you may need to file Form 1041 along with the usual forms. If your bankruptcy was under Chapter 7 or 11, you need to file Form 1041, and if your bankruptcy was under Chapter 13 a trustee needs to file the form for you. If you receive a 1099-C for a cancellation of debt, you must also file an extra form called Form 982 along with your tax return.
If your debt is forgiven, cancelled, or discharged for less than the total amount that was owed, the amount of the cancelled debt is indeed taxable, so take that into account when filing.
Taxable income after bankruptcy does not; however, include your fully discharged debts or any bankruptcy expenses. It is also important to remember that not all tax debt is discharged under bankruptcy, so also keep that in mind when filing.
If you have questions about tax debt forgiveness through bankruptcy or need an attorney for bankruptcy filings, contact us at The Law Offices of Corey Beck via telephone at (702) 678-1999 or request a consultation. We are here to help you navigate the confusing world of bankruptcy filings.
