Can IRS Tax Debt Be Cleared Through Bankruptcy?

Bankruptcy should only be your last resort option for dealing with IRS tax debt. If all other options fail, you should still proceed cautiously when deciding to declare bankruptcy on your tax debt. It is always highly advisable to meet with a tax professional before filing for bankruptcy so that you can make sure there are no other options you might have missed before taking this route.

If you are still going through with bankruptcy to help deal with your IRS tax debt, you will need to file a petition for bankruptcy. When the petition is filed, the court will then create what is known as a bankruptcy estate, which will contain all of your personal assets. You will need to file under the appropriate chapter, either chapter 7 or 11. The type of IRS tax debt relief you receive will depend greatly on what chapter of bankruptcy you file under. One of the best ways to find out which of these chapters you need to file under is to consult an attorney or tax professional who has extensive knowledge of the tax code and bankruptcy code. If the court rules that you are to have your debt forgiven, then your tax debt will be completely cleared.

There are a few items to consider that can help ensure that if you file for bankruptcy you can be cleared of your IRS tax debt. The date of the tax return you owe back taxes for should be from at least three years ago. The rule of thumb is that the return itself must be filed at least two years before filing for bankruptcy. Another important item of consideration is tax evasion. You will not be able to have your IRS debt cleared by bankruptcy if you have been found guilty of tax evasion. If you have supplied any fraudulent information, it can result in being denied forgiveness for your debt and you will still be responsible for paying the amount of taxes you owe in full plus penalties.

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