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Should You File Bankruptcy to Address Your Tax Debt?

March 2nd, 2015 Bankruptcy

A high tax burden coupled with a financial crisis causes some people to file bankruptcy. If you’re considering bankruptcy, you should learn the types of bankruptcy, which taxes can be discharged and how to successfully file.

Individual bankruptcies have increased steadily since the 1980s. While improving over the last couple years, 2014 bankruptcies were still close to one million filings. Filing bankruptcy for tax debt is one of many reasons why people seek this solution and consult with an Arkansas bankruptcy lawyer to file their case.

How Bankruptcy Works

There are two main types of bankruptcy that individuals can file: Chapter 7 or Chapter 13.

  • Chapter 7 bankruptcy will liquidate all the individual’s assets that are not protected under law and distribute them among the creditors. Leftover debt that qualifies will be discharged at that time. If a federal tax lien was issued, it will most likely remain until paid off.
  • Chapter 13 bankruptcy will create a payment plan to pay off debts in a three to five year time period. Any federal tax lien will most likely be removed at the end of that payment period.

Both filings will put an “automatic stay” on any current collections efforts. This means you and your assets will be protected immediately, and all harassing telephone calls and correspondence from creditors will stop.

Which Tax Debts Can Be Discharged?

The rules under 11 USC §§ 523(a)(1) and 507(a)(8) state:

  • The tax return with a tax liability must be at least three years old, including extensions
  • The tax return must have been filed at least two years before the bankruptcy petition (this is usually applicable for late returns)
  • An IRS-prepared “substitute for return” will not be acceptable; you must have filed your tax return
  • More than 240 days must have elapsed since an IRS assessment

If you meet these qualifications, filing bankruptcy for tax debt may help you. An attorney can look at your transcript record, extensions, assessments, penalties and interest to determine if you are qualified.

What You Need To Know

  • You’ll be required to have credit counseling within 180 days before filing your case. You must obtain the counseling from a court-approved provider.
  • Your bankruptcy will be public record and can be seen by creditors.
  • The bankruptcy can remain on your credit report from seven to ten years.

Hire a Bankruptcy Attorney

Bankruptcy is settled in court, although most individuals do not need to attend a court proceeding. In order to ensure the correct forms have been filled out and all the steps completed, it’s best to contact an Arkansas bankruptcy lawyer.

Nolan, Caddell & Reynolds have experience with these cases and can help you determine if filing bankruptcy for tax debt is appropriate for you. To learn more about bankruptcy or to schedule a consultation contact us today or give us a call at 866-242-0452.


Typically I don’t leave much feedback for services rendered, however, in this particular case I think everyone needs to know about my experience with Caddell Reynolds. I have used various attorneys throughout my adulthood for various reasons. Recently I retained an attorney, Joel Hargis, from this firm. If anybody is just satisfied with meeting expectations you need to consider this firm for exceeding expectations. This attorney and his staff far exceeded any expectations I had at the onset. Tammy was amazing in making me feel comfortable with the various entries and documentation needed. Mandy goes above and beyond in being responsive to questions and needs. An example which has never happened to me before with any law firm, was I sent an email late Saturday night requesting an appointment and information and on Sunday I got a response back. What law firm does that? Never in my experience has that ever happened to me. Joel is absolutely amazing. He doesn’t circumvent the law he explains the law that any novice can understand. He left no doubt in my mind of his knowledge, his experience, his attention to detail, and his overall diligence in making sure that I was going to be represented in a manner that my confidence level in my particular case went up 150%. I very much recommend this law firm and if the rest of their legal team is as good as the one I retained within this firm they will go far in servicing any client that needs representation. Amazing and astounding don’t really define or describe how I feel. One word comes to mind, indescribable!

John T