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How to Use Bankruptcy to Eliminate Your IRS Debt


Life is often unpredictable, and while sometimes it can be so in a good way, it is more often than not the hardships that are unplanned for. Unfortunately, financial hardship is one of life’s many adversities that we fail to plan for. When, after months of being unable to pay the mortgage, putting groceries on credit, and stressing about where your next meal is going to come from, you decide that it is time to declare bankruptcy, you are finally able to breathe. But then you remember: you have a tax debt that makes up a fair share of your financial burden. If you declare bankruptcy, will your tax debt disappear too?

The answer is Maybe.  Under the right circumstances certain IRS debt may be eliminated.

At The Port Law Firm in West Palm Beach, Florida, our bankruptcy attorneys will guide you through your bankruptcy and towards financial relief. Though scary at first, bankruptcy can help you wipe clear your major debt and get you back on the road to great financial health.

Eliminating Tax Debt Through Bankruptcy

Outside of bankruptcy the IRS offers a couple of different payment options for those who cannot afford to pay off their entire tax debt in one lump payment. An Offer in Compromise is when you negotiate for a lesser tax liability than what you currently owe. If the IRS agrees to the proposed amount, you will pay off that amount in one payment or a short payment plan and be done. An installment agreement is when the IRS agrees to allow you to pay off your total tax debt over a period of time.

Before entering into one of these agreements you should always review your tax debt to see if it can be eliminated by filing bankruptcy.  However, there are certain factors that you need to consider before determining whether or not your tax debt is dischargeable through bankruptcy, such as:

  • The age of your tax debt (beginning with the date the returns were last due to be filed, and not when you actually filed them);
  • The date of the assessment of your return (determined by the IRS);
  • The date you filed your return (if you filed a return); and
  • Whether you willfully attempted to evade payment of your taxes by fraud.

In order to successfully discharge tax debt through bankruptcy, your IRS debt must meet the following minimum requirements:

  • The debt is more than three years old;
  • The returns were filed on time or it has been at least two years since the date they were filed;
  • You did not attempt to defraud the IRS in any way, nor did you attempt to evade paying your taxes; and
  • The taxes were not assessed within the last 240 days.

Like with most things in life though, there are exceptions to the above rules. At The Port Law Firm, we recommend speaking with a bankruptcy attorney before concluding that your taxes are or are not dischargeable through bankruptcy.

If you cannot discharge your IRS debt with Chapter 7 bankruptcy, do not get discouraged. Chapter 13 bankruptcy is available to a lot more people than Chapter 7, as it is a “repayment bankruptcy.” Through a Chapter 13, you may be able to enter into a more favorable repayment plan than what you otherwise could outside of bankruptcy as penalties will not accrue while you are repaying the debt.

You have many options when it comes to discharging your tax debt, so always speak with an attorney before becoming discouraged and allowing yourself to fall even further behind in debt.

Consult a West Palm Beach Bankruptcy Attorney

If you are struggling financially and cannot afford to pay off your tax liability, do not lose hope. Our West Palm Beach bankruptcy lawyer can help you negotiate with the IRS or, if necessary, file for bankruptcy so that you may discharge the debt altogether. Schedule your free consultation today.


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