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Ask Phil: Bankruptcy

Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses bankruptcy, including if and when tax debt is discharged.  

When you file for bankruptcy, you are relieved from most of your debts, including credit card debt, medical bills, payday loans, utility bills, car loans, mortgages, and more. Many taxpayers want to know if bankruptcies also relieve them of their tax balances. In order for tax debt to be discharged in bankruptcy, it must be at least three years old, two years since you filed that year’s return, and 240 days since the tax has been assessed. In other words, new tax liabilities won’t qualify for discharge in bankruptcy.  

The good news is that when you file for bankruptcy, all creditors will cease collections of debts owed to them, including the IRS. This is at least a temporary measure while your case is being processed. Of course, every bankruptcy case is different. If you’re unsure if your tax debt is qualified for discharge during bankruptcy, you should reach out to a professional for help. 

Don’t miss next week’s episode of Ask Phil! 

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