Bankruptcy and Discharge of Tax Debts

Federal Income Tax Debts may be eligible for discharge under Chapter 7 or Chapter 13 Bankruptcy. If eligible for discharge under Chapter 7 Bankruptcy, tax debts owed to the IRS will be fully discharged, or wiped out. Under Chapter 13 Bankruptcy, the tax debt owed will be partially repaid under a payment plan, with the remainder of the debt discharged. 

The following requirements must be met for an income tax debt to be discharged in either Chapter 7 or Chapter 13 Bankruptcy:

1. The tax debt must be for income taxes. 
2. The tax debt must be at least three years old. (The original due date for the tax return must be at least three years ago.)
3. The income tax assessment is at least 240 days old. (This time period may be extended if an “offer in compromise” for that tax was pending or in effect during that 240 day period.)
4. The tax return for the tax debt was filed at least 2 years ago. 
5. The tax return filed was not fraudulent.
6. The debtor did not willfully attempt to evade or defeat the tax.

Determining whether tax liabilities are dischargeable in bankruptcy requires a comprehensive analysis of each person’s particular financial circumstances. If you are unable to repay your tax debts, and are considering personal bankruptcy, please contact us at info@llkattorneys.com.