April 15th is tax day, and believe it or not, that may be good news if you owe old tax debt and are considering filing bankruptcy. Contrary to popular belief, some old tax debt can be wiped out (“discharged”) in a Chapter 7, or paid a mere percentage in an appropriate Chapter 13. Tax debts become dischargeable in bankruptcy if, and only if, all of the following are true:
- The debt is for personal income taxes (not, for example, business trust fund taxes like employee withholding taxes), and
- The tax first came due more than three years ago (not counting extensions granted for time to file the return or for any time spent during that period in a prior bankruptcy), and
- You must have already filed the appropriate tax return. You must have filed it either on time, or if you filed it late, you must have filed it at least two years ago, and
- Your return was not audited within the last eight months.
The good news is that if all of the above are true, old tax debt is discharged in bankruptcy just as surely as a medical bill or credit card debt would be .April 15th is an important day because on that day each year, one more tax year becomes dischargeable if all of the other factors listed above are true. Thus, as of April 15, 2013, taxes for tax year ending December 31, 2009, may become dischargeable for the first time. (Before April 15, 2013, 2009 taxes could not possibly have come due more than three years ago, and would not be dischargeable).If you owe old tax debt, you need to know the tax years in which those taxes were incurred, and you need to know when you filed the return. Shortly before tax day, we sometimes counsel clients who owe back taxes to wait until after April 15th to file for bankruptcy, because it can save you a lot of money to have another year of old taxes discharged.Call us, and one of our lawyers will be happy to discuss it with you.