Can I Discharge Tax Debt Through Bankruptcy in Colorado?
Can I Discharge Tax Debt Through Bankruptcy in Colorado?
When financial difficulties mount, tax debt can feel especially overwhelming. Many Colorado residents wonder whether bankruptcy can help them eliminate or manage what they owe to the IRS or the Colorado Department of Revenue. While not all tax debts are dischargeable, certain circumstances may allow you to reduce or eliminate them through bankruptcy.
Understanding Tax Debt in Bankruptcy
Bankruptcy offers two main types of relief for individuals: Chapter 7 and Chapter 13. Each treats tax debt differently.
- Chapter 7 Bankruptcy can discharge income tax debt if it meets specific conditions:
- The debt is for income taxes (not payroll or fraud-related taxes).
- The tax return was due at least three years before filing.
- You filed your tax return at least two years before filing for bankruptcy.
- The IRS assessed the tax debt at least 240 days before filing.
- You did not commit tax fraud or willful evasion.
- If all of these conditions are met, the tax debt may be discharged, giving you a clean slate.
- Chapter 13 Bankruptcy allows you to create a repayment plan lasting three to five years. While it may not eliminate tax debt immediately, it can stop collection efforts, reduce penalties, and give you structured payments under court supervision.
What Bankruptcy Cannot Do
Certain debts remain non-dischargeable, including:
- Recent income taxes
- Payroll and trust fund taxes
- Tax penalties for fraud or evasion
Additionally, bankruptcy will not erase tax liens recorded before filing. Those liens remain attached to your property until paid or otherwise resolved.
Moving Forward with Legal Guidance
Tax-related bankruptcy issues can be complicated, and a small mistake may mean your debt cannot be discharged. Having knowledgeable legal assistance is essential to determine your eligibility and ensure proper filing.
At Law Offices of Andrew F. McKenna, P.C., we can provide legal assistance to the Colorado public. We help clients understand how bankruptcy laws apply to their situation and work toward financial stability.
