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Can you discharge tax debt in bankruptcy?

On Behalf of | Jun 30, 2022 | chapter 7 bankruptcy |

The United States Bankruptcy Code allows debtors to discharge some types of tax debt in bankruptcy. The amount of taxes you can discharge also depends on the Chapter of bankruptcy you file.

You cannot discharge trust fund taxes or taxes withheld from other parties. You can discharge income taxes if you meet specific requirements.

Unsecured income taxes

If you owe taxes from previously filed income tax returns, you can discharge the debt in a Chapter 7 bankruptcy if there is no lien on your property and if you meet all other requirements. The lien will remain attached to your property if the IRS has filed a lien against you. You can pay off the secured portion of any IRS tax debt under a Chapter 13 or 11 bankruptcy. The unsecured portion is part of the pool of the unsecured creditors who get paid, but only a tiny fraction of the amount owed.

Filing and other requirements

You must have filed your income tax return two years or more before filing the bankruptcy to discharge the debt. Another time requirement is that the due date of the tax return is more than three years before the date you file bankruptcy.

If you have an assessment of tax from an audit or other IRS process, you must wait 240 days from the date of the assessment before you can discharge the tax. You also must meet all the other time requirements.

You should review your options regarding your tax debt when filing bankruptcy to determine the best action plan.

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