Does Bankruptcy Cover Government Debt?Government debts are the only kind of unsecured debt which are not automatically or easily wiped out in Chapter 7 or Chapter 13 bankruptcy. Most of these types of debt including income tax, student loans, debt related to drunk driving charges, alimony and child support can not be wiped out under any circumstances. However, income tax and student loan related debts can be erased if you meet certain criteria. Bankruptcy Requirements for Erasing Government Debt
The only simple part of the criteria for erasing government debt in bankruptcy is for student loans. If it would be an undue hardship for you to repay a government backed student loan, then you can have the loan dropped from your debts. Mind you this doesn’t include private student loans, which can be erased as normal and don’t have any special considerations. From there, the answer only becomes more and more complicated. Wiping out income tax requires meeting a set of five criteria, and these five criteria are far from simple. You should consult an attorney or at least a debt counselor for further details. Bankruptcy and Income Tax Income tax debt can only be discharged or wiped out under Chapter 7 bankruptcy. You also must not have filed a fraudulent tax return in order to evade taxes within the last 2 years. The taxes must have been assessed (you received a letter notifying you of the taxes you owe) at least eight months before you filed. If you have tax liens against property, these will not be erased and your other income tax debts will only be discharged if you meet all other requirements. Even though tax liens are considered a part of your income tax documentation, you will still owe on the tax liens after bankruptcy. However, as mentioned previous this is a very touchy area of bankruptcy law and it is strongly recommended that you seek professional legal advice.
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