Tax debt can be overwhelming, but bankruptcy may provide relief under certain conditions. Can IRS debt be discharged in Chapter 7 in Georgia?
Yes, IRS tax debt can be discharged in Chapter 7 bankruptcy if it meets specific eligibility criteria, including age of the debt, filing compliance, and assessment timing.
With decades of bankruptcy experience, Morgan Lawyers has helped Georgians eliminate qualifying tax debts through Chapter 7 bankruptcy. Below, we outline the legal requirements, limitations, and strategies for discharging IRS debt.
How Does Chapter 7 Bankruptcy Affect IRS Debt?
Chapter 7 bankruptcy eliminates unsecured debts, but not all tax liabilities qualify for discharge. The IRS has strict rules on when tax debt can be wiped out.
Key Criteria for Discharging IRS Debt in Chapter 7:
- The 3-Year Rule: The tax debt must be from a return due at least three years before the bankruptcy filing date.
- The 2-Year Rule: The tax return for the debt must have been filed at least two years before bankruptcy.
- The 240-Day Rule: The IRS must have assessed the debt at least 240 days before bankruptcy.
- No Fraud or Tax Evasion: The tax debt must not involve fraud or intentional evasion.
If these conditions are met, IRS debt may be discharged, removing the legal obligation to pay it.
What Types of IRS Debt Cannot Be Discharged?
Some tax liabilities are non-dischargeable in Chapter 7 bankruptcy. These include:
- Recent tax debt (less than three years old)
- Payroll and trust fund taxes
- Tax liens (secured against property)
- Unfiled tax returns or fraudulently reported taxes
Even if bankruptcy discharges income tax debt, tax liens recorded before filing remain enforceable.
How to Determine If Your IRS Debt Qualifies for Discharge
Before filing for Chapter 7, it is essential to review your tax debt timeline. A bankruptcy attorney can help by:
- Obtaining IRS account transcripts to confirm the assessment and filing dates.
- Evaluating tax compliance history to ensure all past returns are filed.
- Determining whether tax liens exist and exploring resolution strategies.
If the IRS debt qualifies, Chapter 7 can provide full relief from collections and penalties.
What Happens to IRS Tax Liens in Chapter 7?
Does Chapter 7 bankruptcy eliminate IRS tax liens? No, a Chapter 7 discharge removes personal liability but does not automatically eliminate tax liens filed before bankruptcy.
Options for Dealing With Tax Liens:
- Negotiate a Tax Lien Release: If assets are minimal, the IRS may remove the lien.
- Sell Property to Pay the Lien: If the lien is attached to real estate, proceeds may satisfy the debt.
- File Chapter 13 Instead: Chapter 13 bankruptcy may offer lien repayment options.
Consulting a bankruptcy attorney can help determine the best approach to resolving tax liens post-bankruptcy.
What Are the Alternatives to Discharging IRS Debt in Chapter 7?
What if my IRS debt does not qualify for discharge in Chapter 7? If your tax debt cannot be discharged, alternatives such as Chapter 13 bankruptcy, IRS installment agreements, and Offers in Compromise may provide relief.
Alternative Options:
- Chapter 13 Bankruptcy: Allows you to restructure IRS debt into a manageable payment plan over three to five years.
- IRS Installment Agreement: A payment plan with the IRS that prevents aggressive collection actions.
- Offer in Compromise (OIC): A negotiated settlement where the IRS accepts less than the full amount owed if you meet specific hardship criteria.
- Currently Not Collectible (CNC) Status: If you are in financial hardship, the IRS may temporarily suspend collections.
If Chapter 7 does not eliminate your tax debt, these strategies can still help you regain control over your financial situation.
How Does Chapter 7 Affect IRS Penalties and Interest?
Can bankruptcy discharge IRS penalties and interest? Yes, some penalties and interest on older tax debts may be eliminated in Chapter 7, but recent penalties may still be enforceable.
How Penalties and Interest Are Treated:
- Dischargeable: Penalties and interest related to tax debts that meet the three-year, two-year, and 240-day rules.
- Non-Dischargeable: Penalties from recent tax years and those related to fraudulent or unfiled tax returns.
- Ongoing Interest: If a tax debt is not fully discharged, interest will continue to accrue until it is paid in full.
A bankruptcy attorney can review your tax debt and determine whether penalties and interest qualify for discharge.
Can Filing Chapter 7 Stop IRS Collections?
Yes. Filing Chapter 7 triggers the automatic stay, which temporarily halts IRS collection efforts, including:
- Wage garnishments
- Bank levies
- IRS lawsuits
However, the IRS can request to lift the stay in cases involving fraud, repeated non-compliance, or tax evasion.
Take Control of Your Tax Debt Today
If you are struggling with IRS debt, Chapter 7 bankruptcy may offer relief. The key is understanding whether your tax debt qualifies for discharge and how it affects liens and collections. Call Morgan Lawyers at (706) 548-7070 for a free consultation. Our experienced bankruptcy attorneys will review your tax debt and guide you toward the best financial solution.
Resources:
For more information on bankruptcy and IRS tax debt, visit these authoritative sources:
- Internal Revenue Service – Tax Debt Relief Options
- United States Courts – Bankruptcy Basics
- Consumer Financial Protection Bureau – Dealing with Debt
- Georgia Department of Revenue – Taxpayer Assistance
Further Reading:
What Do You Lose When You File Chapter 7 in Georgia?
Is Workers Compensation Considered Income for Bankruptcies?
How Much Does a Chapter 7 Bankruptcy Lawyer Cost in GA?
How to File for Chapter 7 Bankruptcy in Athens, GA
