There is a common misconception that income taxes are never dischargeable, or forgiven, in bankruptcy. In fact, you can discharge some back federal, state, and local income taxes in either a Chapter 13 or a Chapter 7 Petition.
The Bankruptcy Code sets out specific time periods that determine if and when you can discharge your taxes. Under these rules, you can discharge income taxes that came due three years before you file for bankruptcy, as long as it has been at least two years since you filed the tax forms and 240 days since the taxes were assessed. The 3-Year Rule states that to discharge your back-income taxes, they must become due at least three years before you file for bankruptcy. In other words, if you file on a bankruptcy petition on September 16, 2017, taxes for the years 2013 and prior years all dischargeable as long as the above-qualifications are satisfied. This law is found in Bankruptcy Code Section 507 (a) (8)(A)(i).
Typically, your federal and most state income taxes become due on or around April 15th of each year. In most cases, it is simply a matter of adding three years to this due date to determine the earliest date you can file for bankruptcy and still discharge your taxes. If you get an extension of time to file, the three-year period runs from the date that the taxes are due under the extension. Under the 2-year rule, your income tax returns must have been filed at least two years before you file your bankruptcy petition. This requirement allows you to discharge your taxes even if you file your tax forms late, as long as you file the forms at least two years before filing for bankruptcy.
An exception to the above law is if you do not file your tax returns or if you are found to have filed a fraudulent tax return.
At Michael A. Fakhoury, ESQ., PC, our legal team wants to be there for you during this difficult time. We know bankruptcy is never anyone’s first choice, which is why we will do everything in our power to make this process as seamless as possible. If you are seeking an experienced, skilled, and diligent Fishkill bankruptcy lawyer you can trust, look no further than our firm.
Schedule an initial consultation with a member of our firm by calling (845) 795-3326.