Will bankruptcy discharge my past-due income taxes?

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federal tax debt consumer bankruptcy

Will bankruptcy discharge my past-due income taxes?

It depends whether you file a Chapter 7 or a Chapter 13.

A Chapter 7 debtor can wipe out federal income taxes if all the following are met:

(1) the IRS had not filed a prior tax lien on the assets you own (if they have, the lien survives bankruptcy, which means that the government may still seize property to collect the discharged tax debts);

(2) you didn’t file fraudulently or try to evade paying your taxes;

(3) the taxes are more than three years old; and

(4) tax deficiencies that were assessed on prior returns were assessed at least 240 days prior to the filing of the bankruptcy.

In a Chapter 13 case, you’ll pay the IRS as part of your repayment plan. Not staying current on post-petition taxes, however, will put your plan at risk.

Prior to the Sec. 341 meeting of the creditors, you must file copies of your tax returns or transcript (including unfiled tax returns and any amendments while your case is open) with your case trustee, or any creditor who asks for it. If you do not, you risk an automatic dismissal of your case.

If a federal Notice of Tax Lien has been recorded before filing bankruptcy, it is highly recommended that you seek the advice of an experienced bankruptcy attorney as discharging taxes is far more complicated.

(Reviewed 11.14.08)

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