Deciding that you need to get bankruptcy help by beginning a journey along the Chapter 7 or Chapter 13 bankruptcy timeline is a huge choice that will affect you for the rest of your life.
Because it’s such a life-altering decision, it’s important to consider how a bankruptcy filing will impact all aspects of your life, from your ability to get credit afterward to even something as unexpected as your unpaid taxes.
Want to know just how big of an impact you can expect from Chapter 7 or Chapter 13 bankruptcy and taxes? It generally depends on the decision made by the bankruptcy court regarding your individual case, but you can expect one of three things to happen. Here are the three general rules of bankruptcy and taxes:
The three-year rule for taxes and bankruptcy
Unpaid taxes are typically not permitted to be discharged during a bankruptcy filing. However, if your unpaid personal income taxes are older than three years old, you can discharge these taxes and not be required to pay them back through a Chapter 7 bankruptcy filing. If you opt for Chapter 13 bankruptcy, these unpaid taxes will be repaid through your debt repayment plan.
The two-year rule
Under this rule, an individual who files bankruptcy can discharge his or her income taxes as long as the tax returns were filed at least two years before the bankruptcy filing takes place. If the individual didn’t file his or her tax returns, these taxes won’t be dischargeable, nor would they be eligible to be repaid through a Chapter 13 repayment plan.
The 240-day rule
The final rule for Chapter 7 and Chapter 13 bankruptcy and taxes is the 240-day rule. This rule requires taxes to have been assessed 240 days or more before the individual files bankruptcy — or not assessed at all. This is the most lenient rule regarding one’s unpaid taxes and bankruptcy.
Have any other questions for us about Chapter 7 bankruptcy or Chapter 13 bankruptcy and taxes? Ask us anything and get the help with filing bankruptcy you need by leaving a comment below. This is a great source for more.