Most people in Brooklyn and on Long Island can probably guess that, even in bankruptcy, federal income taxes get special treatment.
Because they are legal obligations and because governments rely on tax revenue to operate, it probably comes as little surprise that federal income tax debts can be hard to shake even after filing for bankruptcy.
Answers to questions about how a bankruptcy will impact federal income tax debt, or tax debt more generally, will depend on a person’s unique circumstances.
Residents of New York City, Long Island and the Westchester County communities who have burdensome tax debt should speak to an experienced bankruptcy attorney about their situation.
However, there are some general concepts people can use as starting points for their questions about income tax debt.
Income tax debts may be dischargeable in bankruptcy in some situations
Income tax debts themselves are difficult to discharge in bankruptcy. However, it is not impossible to do so:
- The debt has to be at least three years old.
- The person has to have filed their recent income tax returns.
- The IRS may not have recently recorded the debt on its books. Once they do record the debt, the debt is not dischargeable for 240 days.
- The debt must be an honest one. Tax debts arising from unlawful or fraudulent behavior are not dischargeable. Tax debts arising from miscalculations, mistakes or misunderstandings might be.
It is also important to remember that like any lien, valid tax liens do not go away because of bankruptcy. If the IRS has a valid lien on a property, then it can still enforce the amount of the lien.
Tax debts that do get brought into a bankruptcy get priority treatment, meaning they jump to the front of the line when it comes to repayment.
While dealing with a tax debt through bankruptcy can seem like an uphill battle, either a Chapter 7 or Chapter bankruptcy can still help a New Yorker’s situation in many ways.