Debt can be one of the most challenging financial burdens to manage, and many people wonder whether bankruptcy can provide relief from these obligations. While bankruptcy can discharge many types of debt, tax debt is subject to specific rules and conditions. If you’re struggling with tax debt and considering bankruptcy, it’s essential to consult with a bankruptcy attorney in Miami to understand your options.

Here’s what you need to know about whether bankruptcy can wipe out tax debt.

1. The Basics of Discharging Tax Debt in Bankruptcy

Tax debt is generally more difficult to discharge in bankruptcy than other types of unsecured debt, like credit card debt or medical bills. However, under certain conditions, it is possible to have tax debt discharged. The key is meeting specific criteria outlined in the U.S. Bankruptcy Code. A bankruptcy attorney in Miami can help you determine if your tax debt qualifies for discharge based on the following requirements.

2. The Five Criteria for Discharging Tax Debt 

To discharge tax debt through bankruptcy, you must meet five essential criteria:

• 1. The Debt Must Be Income Tax Debt: Only federal or state income tax debt can be discharged in bankruptcy. Other types of taxes, such as payroll taxes or fraud penalties, are not dischargeable.
• 2. The Tax Return Must Have Been Due at Least Three Years Ago: The tax return that generated the debt must have been due at least three years before you filed for bankruptcy. This includes any extensions you may have received.
• 3. The Tax Return Must Have Been Filed at Least Two Years Ago: You must have filed the tax return that led to the debt at least two years before filing for bankruptcy. If you didn’t file a return or if the IRS filed a substitute return on your behalf, this criterion will not be met.
• 4. The Tax Assessment Must Be at Least 240 Days Old: The IRS must have assessed the tax debt at least 240 days before you filed for bankruptcy. If there was an audit or a challenge that led to a reassessment, this period might be extended.
• 5. No Fraud or Willful Evasion: The tax debt must not be the result of fraudulent activity or an attempt to evade tax laws. If there is evidence of fraud or intentional tax evasion, the debt will not be dischargeable.

Meeting all five of these criteria is crucial for the possibility of discharging your tax debt in bankruptcy. A bankruptcy attorney in Miami can review your situation and confirm whether your tax debt qualifies.

3. Chapter 7 vs. Chapter 13 Bankruptcy

The type of bankruptcy you file will also affect how your tax debt is handled.

• Chapter 7 Bankruptcy: If you meet the above criteria, filing for Chapter 7 bankruptcy can result in a complete discharge of qualifying tax debt. Chapter 7 is a liquidation process where your non-exempt assets may be sold to pay off creditors, but qualifying tax debts can be eliminated entirely.
• Chapter 13 Bankruptcy: If you don’t meet the criteria for discharging tax debt or if you need to protect certain assets, Chapter 13 bankruptcy might be a better option. In Chapter 13, you can reorganize your debt into a manageable repayment plan over three to five years. This plan may allow you to pay off your tax debt in full or in part, while also protecting your assets from liquidation.

4. The Role of a Bankruptcy Attorney in Miami

Navigating the complexities of bankruptcy and tax debt requires the expertise of a seasoned bankruptcy attorney in Miami. An attorney can help you evaluate your financial situation, determine which type of bankruptcy is most suitable, and guide you through the process of discharging tax debt if you qualify. Additionally, they can help you explore other options, such as negotiating with the IRS for an installment agreement or an offer in compromise.

While discharging tax debt in bankruptcy is not straightforward, it is possible under the right conditions. By working with a knowledgeable bankruptcy attorney in Miami, you can assess whether your tax debt qualifies for discharge and explore the best path forward. Whether through Chapter 7 or Chapter 13 bankruptcy, or through alternative arrangements with the IRS, a strategic approach can help you find relief from overwhelming tax obligations and set you on the path to financial recovery.