By the time a New Jersey resident has filed for bankruptcy protection, his or her debts have usually reached a level that is insurmountable. Those debts may include a mix of credit cards, loans, utility bills and even tax debt. Most people are aware that discharging tax debt during Chapter 7 bankruptcy is a difficult task, but few understand the requirements that must be met in order to attain that goal. The following information is offered in the hopes of educating consumers about their options during bankruptcy.
In order for income tax debt to be eligible for discharge, the debt must be from at least three years ago. The consumer must have filed a legitimate return for the tax year in question, and the applicable return must have been filed at least two years prior to seeking bankruptcy protection. In addition, at least 240 days must have passed since an IRS representative assessed the debt.
Also, the debtor cannot be intentionally evading tax obligations. This includes filing a blank return or filing one that is incomplete as well as failing to properly spell one’s name or list the correct Social Security number. There can be no evidence of fraud within the return.
If all of these conditions are met, a New Jersey consumer can ask the bankruptcy court to include tax debt within the Chapter 7 bankruptcy filing. This can lead to the elimination of those obligations through the discharge process. The end result is a fresh financial start and a chance to regain financial stability.
Source: FindLaw, “Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy“, Jan. 18, 2016