May 12, 2021
Discharge of Federal Income Taxes in Alabama
Tax problems must be dealt with as soon as possible. When tax problems become overwhelming and other debts complicate repayment, some individuals file for bankruptcy. Chapter 7 and Chapter 13 bankruptcy can help you reduce or discharge your tax debt. An experienced Montgomery bankruptcy lawyer can help you file for bankruptcy and handle your income tax obligations.
Certain tax debts, such as property taxes, prior recorded tax liens, and payroll tax, cannot be discharged through bankruptcy. However, filing for bankruptcy and obtaining a discharge of consumer debts can make free up income, making it possible for you to pay the tax debt you were not able to discharge.
Notice from the IRS
You should consult a bankruptcy attorney if you receive a notice from the IRS regarding a tax obligation that you are unable to pay due to multiple debts and other financial difficulties. You should not ignore the notice and hope it goes away. If you fail to pay attention to the notice and do not respond, the government can get a tax lien on your property and from that point forward, you will have fewer avenues for relief.
Effect of Bankruptcy on Income Taxes in Alabama
Federal income tax obligations can be included in your bankruptcy petition. The older debts are dischargeable provided certain criteria are met. In order to be discharged, the follow criteria must be met: (1) debt must be income tax debt, (2) with a tax return due date of at least three years ago, (3) you were notified you owed tax at least 240 days before you filed for bankruptcy, (4) your tax return wasn’t fraudulent and (5) you did not commit tax evasion. The 240-day time limit can be extended if the IRS suspended its collection activity because you made an offer in compromise or had a previous bankruptcy filing.
The effect of filing bankruptcy depends partly on which type of bankruptcy you file as well. If you qualify for Chapter 7 bankruptcy, you may be able to obtain full discharge of income tax debt that meets that above criteria within 3-4 months. If you qualify for Chapter 13, your tax debt will be included in your debt repayment plan, but will only be discharged after you complete your plan in 3-5 years.
Retain an Alabama Bankruptcy Attorney
Filing for Chapter 7 bankruptcy at the right time can prevent the IRS from pursuing wage garnishment or recovery from your bank account. Once the IRS records a tax lien, however, the lien will stay on the property and you will have to pay the tax lien in order to sell the property. This is why it is critical to consult a bankruptcy attorney as soon as you become aware that you owe the IRS and might not be able to pay. Alabama bankruptcy lawyer Charles Grainger can evaluate whether your federal taxes can be discharged and also offer other long-term solutions to your financial difficulties. We serve clients throughout South-Central Alabama with offices located in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a consultation.