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Certain taxes can be eliminated entirely in a
Chapter 7 bankruptcy. The timing
of your case filinhg is critical to successful discharge of taxes.
Determining dischargeability of taxes is a complicated
matter. At the risk of oversimplification one can say -- in
general -- that income taxes more than three years old
are dischargeable if the tax return was filed at least three years
ago (if filed late) or if the return was filed early or on time and
three years has elapsed since April 15th of the year the tax return
was due. Taxes for wage withholding, sales taxes, and other taxes
other than income taxes are not dischargeable. Taxes assessed
in the last 240 days are not dischargeable.
Even if your taxes are not subject to discharge in a Chapter 7
bankruptcy, a Chapter 13 bankruptcy
can make them manageable by eliminating future penalties and
reducing future interest. Chapter 13 will prevent IRS levies
against your wages and assets. Under Chapter 13, the amount
you owe the IRS is paid in full over a three to five year bankruptcy
reorganization period. The high interest rates and penalties
stop when your bankruptcy is filed. The IRS and/or the
Colorado Department of Revenue gets paid up front so that your other
creditors receive what -- if anything -- is left over from your
payments. Often, this means that as much as 98 percent of your
other unsecured debt is discharged (written off) in Chapter 13.
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