Select Page

Perhaps tax debt contributes to your overwhelming financial pressures, and you wonder whether filing a Chapter 7 bankruptcy can help. The answer is, it depends.

Here are some of the factors that affect whether a bankruptcy court will discharge the tax debt.

The type of tax debt

The IRS notes that you may be able to include your past income tax debts in your Chapter 7 bankruptcy, but most other types of tax debt are not dischargeable. These include property taxes, payroll taxes and trust fund taxes.

You cannot include any income tax debts for which you did not file returns. You may be able to include the penalties on dischargeable tax debt in your bankruptcy.

Eligibility for discharge

Requirements include these three factors:

  • You filed tax returns for the relevant years at least two years before you filed for bankruptcy
  • At least 240 days before you filed the bankruptcy, the IRS assessed your tax debt
  • Your tax debt was the result of a return due three or more years before you filed for bankruptcy

If you committed tax fraud or willful tax evasion, your income tax debts are not dischargeable.

Options for paying undischarged tax debt

After a Chapter 7 bankruptcy has discharged other debts, you may be better able to handle tax debts that are not dischargeable. There may be other solutions available from the IRS, though. For example, you may qualify for installment payments or a penalty abatement. Be wary of companies that claim to be able to provide tax relief; these offers are likely to be scams.