When Kentucky residents can’t afford to pay their bills, voluntary bankruptcy could be a solution. This is a bankruptcy that’s initiated by the debtor rather than a creditor. While many different types of debt can be discharged in a Chapter 7 or 13 bankruptcy, tax debt may not be one of them. That depends on the facts of a given case.
As a general rule, the tax debt must be assessed 240 or more days prior to filing. It must also be associated with a tax return that was due three or more years ago and filed two or more years ago. The bankruptcy cannot be an attempt to evade taxes or related to a fraudulent return. As a general rule, withholding taxes cannot be discharged in a bankruptcy, and they cannot be discharged if they are associated with a tax return that was never filed.
Those who are thinking about filing for bankruptcy should know that there are many exceptions and complexities to the bankruptcy code. This is also true for the tax code. Furthermore, different rules may apply if a person is looking to discharge property or other types of taxes as opposed to personal or business income tax. The priority given to a tax debt can also determine whether it can be discharged or not.
By filing for Chapter 7 bankruptcy, it can be easier to get rid of debt balances and obtain a fresh financial start. However, not all debt balances may be eligible for discharge. An attorney could review a client’s financial situation to determine how beneficial it could be to file. One benefit in most bankruptcy cases is that creditors cannot take action to collect debts owed.