Tax Debt and Bankruptcy in Newark

Some tax debts can be eliminated in bankruptcy, but the rules are specific. Here is what Newark filers need to know.

Some income taxes can be discharged if they meet specific age, filing, and assessment requirements (the 3-2-240 rule).

The 3-2-240 Rule

Income taxes may be dischargeable if ALL of these conditions are met:

  1. 3-year rule: The tax return was due at least 3 years before filing bankruptcy
  2. 2-year rule: The tax return was actually filed at least 2 years before filing
  3. 240-day rule: The tax was assessed at least 240 days before filing

Additionally, the return must not be fraudulent, and you must not have willfully evaded the tax.

Non-Dischargeable Tax Debts

  • Payroll/trust fund taxes (941 taxes)
  • Taxes from unfiled returns
  • Taxes from fraudulent returns
  • Taxes assessed within 240 days
  • Tax penalties on non-dischargeable taxes

Chapter 13 for Tax Debt

Even if taxes are not dischargeable, Chapter 13 can help:

  • Stop IRS/state collection, levies, and liens
  • Pay priority tax debt over 3-5 years without interest or penalties (in most cases)
  • Discharge tax penalties related to dischargeable taxes

Frequently Asked Questions

Will filing stop an IRS levy?

Yes. The automatic stay stops IRS levies and collection actions (but not audits or tax assessments).

What about state taxes?

State income taxes follow similar rules to federal taxes for discharge eligibility. Learn more.

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