BACK TAXES CAN BE DISCHARGED IN BANKRUPTCY
There is a common myth that filing bankruptcy will not help you avoid paying back taxes. However, nothing is farther from the truth. While there are certain types of tax obligations that are “non-dischargeable” — in most cases filing a Chapter 7 bankruptcy will eliminate your outstanding income tax debt to the IRS, the State of Michigan and/or cities like the Detroit or Pontiac.
In order to get rid of income taxes that are owed to the government:
- the tax debt must be at least three years old (eg. originally due at least three years before you filed);
- you filed your tax return at least two years before filing bankruptcy;
- the IRS assessed the debt at least 240 days prior to filing for bankruptcy.
For example, let’s say you filed your 2014 income tax return in 2015 and owed the IRS $5,000. However, you didn’t have the money to pay them. Since that time they have sent you letters, added penalties and interest and tried to garnish your bank account. However, they were never able to collect. Now, you just got a new job and you’re worried that they will start garnishing your paycheck (or they already did). In this case, filing a Chapter 7 bankruptcy will likely help — however the timing is very important — because of the “means test.”
In order to file a Chapter 7 case and get your debt discharged, you have to pass the “means test” – which, essentially, is a 6-month “look back” at your income. If during the previous 6-months (eg. before you got your new job) your average monthly income was below the state median income, you are eligible to file a Chapter 7 and discharge your back taxes. This means that, if your new job substantially increases your income, it is probably a good idea to file your Chapter 7 right away because, once you start earning more income, your average income for the “previous” six months will increase. Additionally, if you file and get a Chapter 7 discharge you will get all of the other benefits, including getting rid of all of your credit card and other unsecured debt.
The “bottom line” is that if you owe back taxes and want to find the best way to get rid of them, it is worth your while to call us right away at 248-417-9800 or contact us page online to set up an appointment for a FREE, no obligation, confidential consultation to discuss your financial situation, and get the process started by crafting a plan that reflects your specific financial goals.
Waiting is not going to make the problem go away — it will just make it worse! That’s why we urge you to call us RIGHT NOW — so that you can get the “fresh start” that you deserve — as soon as possible. Our phone lines are available 24 hours a day, so CALL US NOW at 248-417-9800. We look forward to hearing from you.
