16. What are the special bankruptcy rules for HEAL and PLUS Loans?
The federal Health Education Assistance Loans (HEAL) Act, not bankruptcy law, governs HEAL loans. Under the HEAL Act, to discharge a loan, you must show that the loan became due more than seven years ago, and that repaying it would not merely be a hardship, but would impose an “unconscionable burden†on your life.
Parents can get Parental Loans for Students (PLUS Loans) to finance a child’s education. Even though the parent does not receive the education, the loan is treated like any other student loan if the parent files for bankruptcy. The parents must meet the undue hardship test to discharge the loan.
17. Are regular income taxes dischargeable?
Many debtors who are considering bankruptcy because of tax problems are almost always concerned about income taxes they owe to the IRS or the state equivalent. There is a myth that income tax debts can never be discharged in bankruptcy. This is not true! I have discharged hundreds of thousands of dollars of tax debt in my career. If the tax debt is at least three years old, and if you can satisfy several other conditions, then tax debt may be dischargeable. If you have tax debts that qualify under these rules, then these debts can be wiped out just like credit card debt.
Income tax debts are dischargeable if you satisfy all of these conditions:
- You filed a legitimate (non-fraudulent) tax return for the tax year or years in question. If the IRS completes a Substitute for Return on your behalf that you neither sign nor consent to, your return is not considered filed. (See, In re Bergstrom, 949Â F.2d 341 (10th Cir. 1991).)
- The liability you wish to discharge is for a tax return (not a Substitute for Return) that you actually filed at least two years before you filed for bankruptcy.
- The tax return for the liability you wish to discharge was due at least three years before you filed for bankruptcy.
- The IRS has not assessed your liability for the taxes within the 240 days before you filed for bankruptcy. You are probably safe if you do not receive a formal notice of assessment of federal taxes from the IRS within that 240-day period.
If you meet each of these four requirements, then your personal liability for the taxes should be discharged. However, any lien placed on your property by the taxing authority will remain after your bankruptcy. The result is that the taxing authority can’t go after your bank account or wages. but you’ll have to payoff the lien before you can sell your real estate with a clear title.Penalties on taxes can also be dischargeable.
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