Tax season is here, and you may soon receive documents from your employer that will help you file your taxes. However, you may already dread this season because you have a substantial amount of tax debt that has affected you and your finances for years. For whatever reason, you did not have the ability to pay your tax liabilities, and you now face a serious financial problem.

Luckily, you do not have to feel out of options when it comes to addressing your outstanding tax debt. In fact, you could find the help you need through a common debt-relief option: bankruptcy. Of course, before jumping into this process, you may want to take the time to understand the stipulations involved in relation to tax debt.

Priority debt

In bankruptcy, some outstanding balances take priority over others. These priority debts are paid first during the process, and tax debt falls into the priority debt category. If you file for Chapter 7 bankruptcy, your tax debt will be among the first paid with the proceeds from your liquidated assets. If you file for Chapter 13 bankruptcy, you must pay the debt in full as part of your repayment plan. Additionally, you cannot discharge your tax debt in a Chapter 13 bankruptcy case.

Chapter 7 discharge

If you qualify and file for Chapter 7, the court may discharge your tax debt if your liquidated assets do not generate enough proceeds to pay off the debt. However, your situation must meet the following qualifications in order to have that tax debt forgiven:

  • The related tax return must have had a due date of at least three years ago.
  • You filed the related tax return at least two years ago.
  • You received a tax assessment from the Internal Revenue Service at least 240 days before filing for bankruptcy.
  • You have a legitimate tax return and have not committed tax evasion.
  • You have filed the tax returns for the last four years before the first creditors’ meeting relating to your bankruptcy case.

It is also wise to determine how specific aspects of your case will influence the overall bankruptcy process and your ability to obtain debt forgiveness. Working with an experienced California bankruptcy attorney could help you gain reliable information and provide you with guidance and assistance throughout your bankruptcy proceedings.