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Russell G. Small and Kenneth Lenz

Dischargeability of tax debts in bankruptcy

| Jan 11, 2019 | Bankruptcy

Bankruptcy is an option for people in Connecticut who are struggling to pay off their debts, but there are certain types of debts that may not be discharged. Tax debts are not dischargeable unless they meet special requirements. Generally speaking, tax debts cannot be discharged if they are withholding trust fund taxes for which the person is liable, associated with a tax liability for which the person did not file a return or associated with a frivolous or fraudulent return.

Additionally, if the person willfully tried to evade liability for the taxes or the tax debts are tied to returns that were filed late within two years prior to the bankruptcy filing, they will generally not be dischargeable. In order for a tax debt to be eliminated in bankruptcy, it must be related to a return that was due three years or more before the bankruptcy filing and filed two years or more before the bankruptcy filing. These taxes must have been assessed 240 days or more prior to filing for bankruptcy.

The debt must also not be associated with a fraudulent or frivolous tax return, nor can it be the result of an attempt to evade paying taxes. In a Chapter 7 bankruptcy, all individual allowable debts might be discharged. In a Chapter 13 bankruptcy, the debtor will typically be required to pay back some or all of their debts via a three- to five-year payment plan.

People who have tax debts they want to get rid of might want to speak with a lawyer. These types of debt are generally harder to discharge than others, but a lawyer with experience in bankruptcy law might be able to help. The attorney might draft and file a bankruptcy petition on the client’s behalf or argue in favor of discharging the tax debts in bankruptcy court.

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