A bankruptcy filing can solve a variety of debt-related problems. But, it can’t solve every debt-related problem, and bankruptcy isn’t always a wise choice when it comes to dealing with tax debt.
What Is Bankruptcy?
Bankruptcy is a process that allows individuals and organizations to discharge their debts. By filing for bankruptcy, an individual can discharge the debts they currently possess and cannot pay off.
Outside of allowing individuals and organizations to discharge their debts, bankruptcy will also enable creditors to obtain some form of repayment, often through liquidating certain assets.
Even though bankruptcy can be ideal – and, in some cases, necessary – filing for bankruptcy and going through the processes that this entails is often quite challenging.
What Are The Benefits Of Filing For Bankruptcy?
The act of filing for bankruptcy offers a variety of benefits. Some of the most notable benefits that can arise by filing for bankruptcy are as follows:
- No further legal proceedings arising from the debt can be filed against the individual who filed for bankruptcy.
- The debt that was owed to creditors will no longer be owed, even if this debt was not paid off in full.
- Many of the goods that were about to be seized – or, in some cases, have already been captured – can be retained to pay off this debt.
Outside of these benefits, bankruptcy does come with a number of consequences. Some of the most notable consequences that can arise from filing for bankruptcy are as follows:
- A bankruptcy will show up on one’s credit report.
- A bankruptcy can make it challenging to obtain a business license.
- A bankruptcy will affect any business that one owns.
Someone who wishes to file for bankruptcy in North Carolina due to their tax debt should first speak with a tax planning lawyer. By doing so, they can determine if this is, in fact, the right choice for their situation.
What Types Of Debt Can Filing For Bankruptcy Eliminate?
A bankruptcy filing can eliminate many different types of debt. Some of the most common types of debt that bankruptcy can be, and often is, used to eliminate are as follows:
- Repossession deficiency balances.
- Credit card debt.
- Medical bills.
- Business debt.
- Unpaid utility bills.
- Personal loans.
- Unpaid rent.
- Overpayments from government programs.
- Collection agency accounts.
Every single one of the above can be eliminated by filing for bankruptcy. But, with that being said, there are a variety of different types of debt that cannot be eliminated through filing for bankruptcy.
Some of the most notable types of debt that cannot be eliminated through filing for bankruptcy are as follows:
- Child support.
- Debts obtained through fraud.
- Student loans.
- Car loans.
- Debts obtained through other criminal acts.
- Certain types of tax debt.
Our focus is on the latter item within that list.
Can A Bankruptcy Filing Be Used To Eliminate Tax Debt?
The simple answer to this question is “Yes.” But, while that answer is technically accurate, it fails to paint a complete picture of the ways in which bankruptcy can affect tax debt.
A bankruptcy filing can be used to eliminate one type of tax debt: income tax debt. Someone who files for bankruptcy due to their income tax debt may be able to eliminate the income tax they owe to their state and to the federal government.
Someone who owes tax debt unrelated to their income – payroll taxes, for example – will not be able to discharge this debt in a bankruptcy filing.
Outside of this fact, the following requirements must be met in order to allow an individual to eliminate their tax debt by filing for bankruptcy:
- The tax debt must be older than three years.
- For this debt, a tax return must have been filed a minimum of at least two years before filing for bankruptcy.
- The return must have been filed on time and in an honest manner.
- The IRS must assess the debt before bankruptcy can be granted.
Assuming all of these requirements are met, an individual can file for bankruptcy and eliminate their income tax debt. But, if they have other types of debt they wish to eliminate, they will be unable to do so.
Speak With A North Carolina Tax Planning Lawyer Today
No matter the tax debt you or your business are facing, bankruptcy is likely not the solution you are looking for. But, even so, there is a solution, and we at Wilson Ratledge will help you find it.
Speak with a tax planning attorney at Wilson Ratledge today. We will assist you in finding a way to eliminate the tax debt you are facing.