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Tax Penalties and Chapter 7 and 13 Bankruptcy

When you have tax debt, tax penalties will follow.  If you do not pay your tax debt, tax penalties can grow to an unmanageable amount.

Chapter 13 Bankruptcy discharges all unsecured tax penalties whether it is for old or new tax debt.

Chapter 7 Bankruptcy discharges some tax penalties.  Chapter 7 Bankruptcy discharges penalties only for taxes that are themselves dischargeable.  Dischargeable taxes are described under 11 U.S.C. 523(a)(1).  In addition, Chapter 7 Bankruptcy discharged penalties of transaction or event that occurred more than 3 years before bankruptcy filing, whether or not the tax itself is dischargeable because, for example, the tax return was weren't filed on time.  11 U.S.C. 523(a)(7)(B).

A tax debt is dischargeable if the tax is unsecured and all 3 conditions are met:

    1. the tax return was due more than 3 years before the bankruptcy case was filed;

    2.  if the tax return was not filed on time, the tax return has to be filed for at least 2 years before the bankruptcy case was filed; and

    3. the tax was assessed at least 240 days before bankruptcy filing.

Chapter 7 Bankruptcy cannot discharge tax lien.  Chapter 13 Bankruptcy might be able to discharge tax lien.  That is why you should not delay in speaking with an experienced bankruptcy attorney.

Chapter 13 Bankruptcy is better than Chapter 7 Bankruptcy because all tax penalties are discharged.

The dates of transaction is critical in discharging tax debt and tax penalties.  You should go to your nearest Internal Revenue Services branch offices to get a copy of the "Account Transcript" for the years you owe taxes before your consultation with a bankruptcy attorney. There are IRS branch offices in Sacramento California and Stockton California.