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Discharging Property Tax Debt – How a Lawyer Can Help You Via Bankruptcy

April 6, 2016

One of the most misunderstood aspects of filing for bankruptcy centers on the question of discharging tax debts. Though some people believe that no tax debts can be wiped out, this is not true. There are certain income tax debts that can be discharged as a result of filing for bankruptcy, as well as some other kinds of tax debts as well. The Philadelphia Law Firm of Erik B. Jensen, P.C. is extremely knowledgeable regarding all of the types of debts that a bankruptcy can impact, as well as which it cannot. Contact us today to discuss discharging property tax debt, as well as all of your other bankruptcy questions.

Generally speaking, property taxes that have been assessed prior to a debtor filing for bankruptcy can not be discharged by a bankruptcy filing. It is important to remember, however, that this rule is only true of those taxes that were assessed in the one-year period prior. This means that any taxes that were due and for which a penalty had not been charged more than one year before filing for bankruptcy can be discharged. Though this is good news, it is also important to remember that if your township or county has placed a lien against your property as a result of your nonpayment of property taxes, then the lien will follow you, even after your Chapter 7 bankruptcy filing is approved.

Looking beyond property taxes, there are many other types of taxes that you may have been unable to pay. As stated above, tax liens that have been attached to your property are what is known as secured taxes, and as long as they exist prior to your having filed for bankruptcy, they will stay intact. Though the bankruptcy may eliminate your personal obligation, meaning you may not be required to pay the tax debt directly from your personal assets, when you sell the property the tax debt will need to be paid out of any profits that are earned.

Other taxes for which you will still be held responsible following a bankruptcy filing include the taxes that your employer must withhold, sales taxes paid by your customers, FICA and Medicare taxes, and some employment taxes. You will also have to pay back any tax refunds or credits to which you were not entitled. With reference to income tax debt, there are only specific instances in which your tax debt will be discharged. These requirements include:

  •  The taxes have to be based on income
  • The overdue return has to be at least three years old
  • The tax return has to have been filed at least two years earlier
  • The taxes have to have been assessed at least 240 days prior to the bankruptcy filing
  • There can be no fraud or willful evasion associated with the tax return

 

The interplay between tax debt and a bankruptcy filing can be complex. Make sure that you understand all of your obligations and whether filing will also result in discharging property tax debt by speaking with one of the professionals at the Law Office of Erik B. Jensen, P.C.

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