Filing for bankruptcy can bring relief from overwhelming debt and annoying phone calls from creditors. Unfortunately, it does not always exempt you from paying state income taxes.
Whether you can have your Georgia state income taxes discharged along with your other debts depends on the type of bankruptcy you file and the nature of your tax debt.
Chapter 7 bankruptcy
In Chapter 7 bankruptcy, you must liquidate nonexempt assets to pay off creditors, and the court then discharges any remaining debts. However, not all tax debts are dischargeable. To qualify for discharge, the tax debt must meet specific criteria, including the following:
- You owe income taxes and not other types of taxes such as payroll taxes
- The tax return for the debt was due at least three years before filing for bankruptcy
- You filed the tax return at least two years before filing for bankruptcy
- The Georgia Department of Revenue assessed the tax debt at least 240 days before you filed for bankruptcy
- You did not commit fraud or willful evasion in relation to the tax debt
If you meet these criteria, you may not have to pay your state income taxes after filing Chapter 7 bankruptcy.
Chapter 13 bankruptcy
In Chapter 13 bankruptcy, you create a repayment plan to pay off debts over three to five years. This repayment plan includes paying your taxes in full. The good news is that you can usually pay the tax debt over time without facing additional penalties or interest.
Be sure to include the Georgia Department of Revenue on your bankruptcy petition. Also, be aware that filing for bankruptcy automatically cancels any existing tax payment plan you have with them.