Can I Discharge Tax Debt in Florida Bankruptcy?

Bankruptcy is a powerful tool. If you are struggling to pay debts, filing for bankruptcy can be a great way to wipe them out completely. However, bankruptcy is not a cure-all. It may not eliminate all debts you may have. For example, not all tax debts can be discharged in a Florida bankruptcy.

In fact, most types of tax debt cannot be discharged in bankruptcy. This means that even if you file for bankruptcy, you will likely be responsible for paying any outstanding tax liability. But there are a couple of exceptions. For example, if you can prove that your tax debt is the result of fraud or mistake, you could have it discharged. You may also be able to have your tax debt discharged if you can show that paying your taxes would create an undue hardship.

That’s not to say you’re totally out of luck. Tax debt can be discharged in a Florida bankruptcy, but only under specific conditions. To qualify for discharge under Chapter 7, the tax debt must meet the five-part test:

• Income tax only. The debt must be for federal or state income taxes (not payroll, fraud penalties, or trust fund taxes).
• Three-year rule. The tax return was due at least three years before filing bankruptcy.
• Two-year rule. The tax return was filed at least two years before filing bankruptcy.
• 240-day rule. The IRS assessed the tax at least 240 days before filing.
• No fraud or evasion. You were honest when you did your tax returns. You did not commit fraud or attempt to evade taxes.

Keep in mind that even if your tax debt qualifies, liens may remain, meaning the IRS can still enforce collection on property.

In Chapter 13 bankruptcy, you cannot generally discharge your tax debts. However, you can repay them through the life of your Chapter 13 repayment plan, which can last three to five years.

While this can be a pain, a Chapter 13 bankruptcy filing can be the smarter option in dealing with tax debt because:

• Tax debt older than three years might be forgiven, depending on how much disposable income you have.
• IRS tax liens can be satisfied in a Chapter 13 repayment plan.
• Discharged tax debt will not incur additional interest or penalties.
• As long as you meet all current tax obligations, the IRS must abide by your Chapter 13 repayment plan.

Contact Us Today

Bankruptcy can provide significant financial relief, but there are some limitations. It does not discharge certain debts, and its ability to wipe out tax debts is limited.

West Palm Beach bankruptcy attorney Brian K. McMahon, P.A. makes the bankruptcy filing process easy to understand and as stress-free as possible. We can answer your questions about various debts. Fill out the online form or call (561) 658-1789 to schedule a consultation. We serve the West Palm Beach, Boca Raton, Port St. Lucie, and South Florida areas.