In an earlier blog I wrote about how forgiveness of debt through a settlement can cause a tax problem, and pointed out that when debts are discharged through the court system in a bankruptcy, there is no additional tax.

While we’re talking about tax, one of the big myths about filing bankruptcy in Indiana is that you can get rid of some debts through filing bankruptcy, but you can never get rid of tax bills. The good news is, that’s not true. As a bankruptcy attorney in Indiana for many years, I can tell you that we get rid of old income tax bills for clients all the time. Maybe they have lawsuits and judgments of all kinds, and the one place they never expected to get any relief is from the IRS. I’m here to tell you that one of the big bankruptcy services I’ve been able to provide is in the area of back taxes for personal bankruptcy and and small business bankruptcy clients. We have discharged millions in tax debt in bankruptcy over the past 23 years.

How old do the taxes need to be to qualify? Income taxes more than three years old qualify for forgiveness under the Indiana bankruptcy laws. True, it’s not just a snap of the fingers; there are three or four qualifications that a personal needs to meet in order to be excused from the taxes, but once those things are met, the taxes are forgiven. (I need to add here that bankruptcy does not get rid of taxes withheld from your paycheck or sales taxes, not even three year old ones.)This tax thing is just one more reason to work with an experienced bankruptcy professional – you need help making use of all the legal advantages you can.