Tag Archives: taxes discharged in bankruptcy

Will I get my parent’s 401K money when they die?

Recently on our legal forum a user asked, “I am in a financial crisis. I have thought about filing for bankruptcy. Last week my parent’s both died in a car accident. They don’t have many assets, but they do have close to a million dollars in their 401K account. They were over the age of 70 and already withdrawing money from their account. I am their only child. Do I get their money when they die? Can I get it all at one time?”

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Can Filing a Bankruptcy Help Your Tax Matters?

Since bankruptcy laws are somewhat complicated, many questions arise about the laws, especially from first time filers. One such question is, “Can filing a bankruptcy help your tax matters?

Most debtors who want to file for bankruptcy protection that ask this type of question usually have income taxes that are past due, and they want to know if filing bankruptcy can relieve their requirement to pay them.

Unfortunately for the most part, most all types of taxes are exempt by federal and state laws from being discharged by bankruptcy filings. The good news is there are exceptions to those rules.

Almost any type of tax can be discharged if you can prove undue hardship. Undue hardship is usually applied to a debtor who has no income and little chance of earning enough in the future to pay off the debt. A disability can play a huge role in determining whether someone has an undue hardship. Nevertheless, undue hardship is very hard to prove in a court of law. Otherwise, no one would be paying their taxes.

Back income taxes can be discharged in a bankruptcy filing under certain federal guidelines.

The following is a brief summary of the federal guidelines that must be met before a personal income tax may be discharged in a bankruptcy case:

  1. The tax must be due and owed for a period of more than three years, and the due date of the taxes is more than three years before the bankruptcy case is filed.

  2. The tax return for the tax debt at issue must be filed more than two years before the bankruptcy is filed.

  3. The tax debt issue has been assessed by the taxing authority more than 240 days prior to the filing of the bankruptcy case.

  4. The debtor filing the return must not have attempted to evade the paying of the tax nor can the debtor filing be willfully fraudulent in submitting a return.

The only way filing bankruptcy can help your tax matters is if your particular situation fits the federal guidelines on discharging federal taxes in bankruptcy, or you can prove undue hardship.

Both of these situations are very complicated when it comes to bankruptcy laws, and each might require the attention of a bankruptcy lawyer in order to help you understand how each one may apply in your particular situation.

If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of San Francisco, California, contact us here today at www.bankruptcyhome.com . We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.