Can You Discharge Tax Debt in Alabama Bankruptcy Cases?

When facing overwhelming debt, many individuals in Alabama consider bankruptcy as a potential solution. One of the most common questions that arises is whether tax debt can be discharged in bankruptcy. Understanding the rules and regulations surrounding this process is crucial for anyone considering bankruptcy as a means to alleviate their financial burden.

In Alabama, as in other states, the ability to discharge tax debt in bankruptcy largely depends on the type of bankruptcy filed and the nature of the tax debt itself. There are primarily two types of personal bankruptcy that individuals can file: Chapter 7 and Chapter 13.

Discharging Tax Debt in Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows for the discharge of certain unsecured debts. However, discharging tax debt in Chapter 7 is only possible under specific conditions. To qualify for a tax discharge, the following criteria must generally be met:

• The tax must be income tax.
• The tax return for the debt must have been filed at least two years prior to filing for bankruptcy.
• The tax debt must have been assessed by the IRS or the Alabama Department of Revenue at least 240 days before the bankruptcy filing.
• The tax return must not have been fraudulent, nor should you have willfully attempted to evade paying taxes.

If these conditions are satisfied, it is possible to eliminate tax debts in Chapter 7 bankruptcy, thereby giving individuals a fresh start.

Discharging Tax Debt in Chapter 13 Bankruptcy

Chapter 13 bankruptcy works differently, as it involves creating a repayment plan to pay back a portion of debts over three to five years. Tax debts can still be dealt with in this type of bankruptcy, though the process is nuanced. In Chapter 13, tax debts that qualify as "priority debts" must be repaid in full through the repayment plan. However, there is a provision for "general unsecured tax debts," which may be discharged at the end of the repayment period if certain criteria are met:

• The tax must be income tax.
• It must not be more than three years old from the due date.
• The tax return has to be filed at least two years prior to the bankruptcy filing.

Chapter 13 can provide a more structured approach to managing tax debts, allowing for repayment rather than outright discharge, which can be beneficial for individuals with significant tax obligations.

Consulting a Bankruptcy Attorney

Navigating the complexities of bankruptcy, particularly when dealing with tax debts, can be daunting. It is advisable to consult with a knowledgeable bankruptcy attorney in Alabama who can provide guidance tailored to your specific financial situation. An attorney can help assess your eligibility for different types of bankruptcy, explain which debts can be discharged, and assist with the filing process.

In conclusion, while it is possible to discharge tax debt in Alabama bankruptcy cases, specific conditions must be met depending on the type of bankruptcy filed. Understanding these nuances is essential for making informed decisions about managing overwhelming tax liabilities.