Tax Debt Relief

Filing bankruptcy may remove or lessen the financial burden of owing back taxes depending on several factors including whether the tax debt is secured, prioriy, or unsecured. A tax debt is secured (or partially secured depending on your equity in the property) if the taxing authority filed a tax lien in a county where you own real property. If a tax debt is not dischargable in bankruptcy, the debt is a priority debt. A tax debt that can be discharged is an unsecured debt.

Examples of tax debts include: employment and Florida sales taxes from a personal business, federal income taxes, 941 or Social Security taxes, and Florida property taxes. More often than not, filing Chapter 13 bankruptcy allows you to discharge more tax debts than a Chapter 7 bankruptcy. However, tax law is complicated. There are exceptions to some of the rules regarding tax debt relief. Discussing your particular case with a bankruptcy lawyer will be more beneficial than relying on the Internet exclusively for information.

If the following conditions are met you can eliminate your federal income tax debt and the interest and penalties that were imposed by the Internal Revenue Service ("IRS"): (1) You properly filed a tax return for the year in question or at least 2 years before you file for bankruptcy you signed and accepted a "Substitute Tax Return" filed by the IRS for the year in question; (2) the tax return for which you owe taxes was for a tax year which with respect to which the due date, or extended due date, was more than 3 years before your bankruptcy filing date; (3) the IRS actually assessed the tax against you more than 240 days prior to your bankruptcy filing date; and, (4) the IRS has not filed (recorded) a "Notice of Federal Tax Lien" in the county(ies) in which you own real property.

If the first 3 conditions above are met you may be able to discharge part or all of your personal liability for the income taxes in question but the IRS lien on your property will remain and the IRS can proceed to levy (seize) on your property to satisfy your tax obligation (through a foreclosure action). If the IRS has not filed a tax lien and the taxes are not dischargeable because one or more of the above conditions is not met, the tax debt is a priority debt and must be paid off in full in a Chapter 13 plan. Nondischargeable tax debts will survive a Chapter 7 bankruptcy -- meaning you will still be financially obligated to pay them.

If the first 3 conditions above are met and the IRS has filed a Notice of Federal Tax Lien against your property but the value of your equity in the property is less than the tax debt, the government is either totally unsecured or partially unsecured depending on the circumstances. The unsecured portion of a dischargable tax debt can be treated as unsecured debt for purposes your bankruptcy and either paid under a Chapter 13 plan along with other unsecured creditors or eliminated entirely in a Chapter 7 case.