ARE TAXES AND STUDENT LOANS DISCHARGEABLE IN BANKRUPTCY?
The answer to the possibility of discharging taxes and student loans in Bankruptcy is, as with most things, “Sometimes".
Income tax debt is typically dischargeable in Bankruptcy so long as the debt is for taxes that were filed and assessed by the governmental entity at least 3 years before filing Bankruptcy. For example, if you filed a Federal tax return for the year 2008, and the tax return was fully accepted by the IRS in 2008, then the tax would be dischargeable if you filed Bankruptcy any time from 2012 forward. However, if the tax debt is for the year 2008, but you did not file the 2008 tax return until 2011, then the tax debt would not be dishargeable until after 2014. There is one exception to this: even for more recent tax debt, the interest and penalties on the taxes owed can still be dischargeable in Bankruptcy, leaving you with only the actual tax debt to repay.
These rules for discharging tax debt in Bankruptcy only apply to income tax debt. Business owners that owe either withholding tax or sales tax will not be able to take advantage of these tax discharge laws.
Even for tax debt that is not dischargeable, there is still a way that Bankruptcy can help. A Chapter 13 repayment plan can give you 3 to 5 years to repay the tax debt.
When it comes to student loans, the answer is typically that the debt cannot be discharged in Bankruptcy. In order to get these debts discharged, you must be able to show an extreme level of hardship. This would usually have to involve a serious disability leaving you unable to earn a living.
There is an exception though when it comes to student loans. If the student loans are not government-backed, then they are likely dischargeable. This type of loan would be categorized as a private student loan. So long as the student loan is truly not government-backed, and it is not secured by your property, then chances are it can be discharged in Bankruptcy.
To determine how your debt would be treated in Bankruptcy, as well whether a Chapter 7 or Chapter 13 Bankruptcy is your overall best option, requires a discussion about your complete financial situation. Please contact attorney James Ealley for more information. Consultations are free, and you will leave the meeting with a clear picture on all of your options.