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Can income taxes be discharged in my NJ bankruptcy?

One question I am often asked is whether people can get out from under an onerous tax burden by filing bankruptcy, either in a chapter 7 or a chapter 13.  Trust fund penalties aside for unremitted payroll tax deductions, it is possible to discharge (wipe out) income taxes under certain circumstances.  However, those circumstances are far from straightforward and should be reviewed with care by an attorney.

Until recently, if the income tax return of the debtor

  • was due at least three years before the filing of the petition
  • was actually filed two years before the filing of the petition, and
  • the taxes were assessed at least 240 days before the filing of the petition,

the tax was generally dischargeable. The problem, though, is that the IRS has successfully challenged the second prong of that rule at the trial court level.

For example, suppose you haven't paid all of the income taxes from tax year 2005, and the return for that year was filed on or before April 15, 2006. This would generally be dischargeable. However, what if the return for 2005 was not filed until much later, such as January of 2008? It would have been filed more than two years ago, but arguably not "on time."

So What Do I Do?

Here you would need to discuss this with an experienced bankruptcy attorney to see if discharging that tax is still possible. On the other hand, if you have tax debt that fell due three years ago on a timely filed tax return, you may well be able to get out from under it by filing bankruptcy.

If you live here in southern New Jersey, owe taxes to the IRS or New Jersey, and are looking to see if bankruptcy can help you, please feel free to call my office at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.