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Discharging Tax Debt During Chapter 7

Falling behind on taxes can be a particularly difficult form of debt, because the IRS has access to stricter collection methods than most other creditors. Back taxes are made worse by penalties and fees, and many people can’t afford to catch up. While it’s difficult to eliminate tax debt, chapter 7 bankruptcy can provide help. However, filers must meet strict criteria to have their tax debt eliminated.

Income Tax is Owed

The only type of tax debt dischargeable through chapter 7 bankruptcy is income tax debt. If someone owes other kinds of taxes, such as sales or payroll tax, they can’t get those debts discharged. It’s also impossible to eliminate penalties levied by the Internal Revenue Service.

Returns Were Filed

To be eligible for the elimination of income tax debt, the client must file his or her taxes. A minimum of two years before filing for bankruptcy, the client must have filed accurate, complete tax returns for the years in which the debt was accrued.

The Debt is of a Certain Age

Only debts that came due three years or more before the filing date, including extensions, are eligible for discharge. The client must also prove that the debt was assessed by the IRS a minimum of 240 days before the bankruptcy filing; otherwise, they may have to wait to be eligible. The limit may be extended if the IRS couldn’t assess the debt because of an offer in compromise or a previous bankruptcy.

No Discharge of Federal Tax Liens

If a person’s taxes qualify for discharge, the victory may not be complete. Bankruptcy cannot eliminate a previously recorded tax lien. While Chapter 7 eliminates the personal obligation to repay the debt, and it prevents the IRS from going after the person’s wages or bank accounts, the tax lien will remain.

No Tax Evasion

A person who willingly evades his or her tax liability in order to avoid paying debts is not eligible for a discharge during a bankruptcy case. A person whose returns contained intentionally misleading info is also disqualified from receiving a discharge.

For many years, the attorneys at John Henderson Law have worked to protect debtors’ rights. With a deep understanding of the US bankruptcy code and a commitment to personalized service, a bankruptcy attorney can help a client get the fresh start they need. Call the office to speak to a representative or visit the website to schedule an appointment for a no-obligation consultation.



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