Bankruptcy and Unpaid Tax Returns
Bankruptcy has the ability to wipe out tax debt but income tax returns need to be filed. Tax debt is subject to specific qualifications in order for it to be discharged or eliminated after your case is filed. There are several factors to review if wiping out tax debt is an option you are considering.
In order for bankruptcy to eliminate tax debt, income tax returns need to be filed for previous years. Debt related to unpaid taxes must be at least 3 years old or it was due 3 years before your filing. Tax returns filed are to be completed in full honesty. Until you complete your unfiled returns bankruptcy cannot be an option. Yet, there are other options you can think about.
You can complete your unfiled returns on your own or with the assistance of a tax professional. Submit them to the Internal Revenue Service (IRS) and ask about payment arrangements such as an installment plan. Taxpayers have been able to get an affordable payment plan by negotiating with the IRS. You can set up a payment agreement with the IRS with or without a legal expert or accountant.
Chapter 13 bankruptcy is another option. Filing this chapter creates a court-approved payment plan based on what you can afford. It’s a legal alternative that forces the IRS to accept only what you are able to pay. You can stretch out payments up to 5 years and state income taxes can also be included.
Reference: https://www.nolo.com/legal-encyclopedia/will-bankruptcy-wipe-unfiled-unpaid-income-taxes.html