As you might expect, the law prevents a person from discharging certain taxes in bankruptcy. What you might not expect is that the law also may prevent a person from discharging debts incurred to pay for those same taxes as well. The reasoning here is that a debtor should not be able to simply substitute a dischargeable debt for a non-dischargeable one.
The debt owed to your institution must have been incurred to pay a non-dischargeable tax. For obvious reasons, non-dischargeable taxes include taxes due to late or unfiled returns and fraudently filed returns. However, non-dischargeable taxes also include income taxes, payroll taxes, sales taxes, employment taxes and property taxes. The key is timing – how soon before the bankruptcy filing did the taxes become payable.
Therefore, if a member used money or credit extended by your institution to pay for a qualifying tax debt and filed bankruptcy, there are steps you can take to secure payment both within the bankruptcy and/or prevent it from being discharged. A consultation as to the circumstances of your particular case is necessary to determine whether your institution has a viable claim to have the debt qualify for non-dischargeability. Contact us for a free consultation.