Can I Discharge a Tax Debt through Bankruptcy?

Written by™ on behalf of David Shuster with Shuster Law, PLLC.

Can I Discharge a Tax Debt through Bankruptcy?

It honestly depends. Whatever the case, don’t believe what you hear about tax debt discharge on the radio, or even on TV, because the fact is this: tax debts often can’t get liquidated or eliminated in bankruptcy. If you’ve filed for a Chapter 7, you’ll most likely still owe them. If you’ve filed for Chapter 13, chances are good you’ll just repay them in full anyway.

Some Exceptions for Tax Debt Discharge

There are some exceptions. For starters, always try and file for Chapter 7 bankruptcy. Many consider it the “clean slate” bankruptcy filing, so if you’re looking to discharge a tax debt through bankruptcy, that’s your best ticket.

You will, however, have to consider these conditions first before trying to pursue that:

Those Taxes You Want to Discharge Have to be Income Taxes

Those are the only kinds that can be discharged through Chapter 7. Any other kind, such as payroll or fraud penalties must be paid back, no questions asked.

You Cannot Have Committed Fraud or Willful Evasion

You’d be surprised at how many actually do commit fraud or evasion—sometimes without even knowing it. Filing a fraudulent tax return is not the best foot forward when considering Chapter 7 for tax discharges.

And If the Debt is at Least Three Years Old….

You should be pretty much set. The standard law states that a tax return had to have been originally due at least three years before filing for bankruptcy. So keep that in mind.

If You Actually Filed a Tax Return—

You should also be in the green. However, make sure you have filed that particular tax return (not late) at least two years before filing for Chapter 7.

And What Is This “240-Day Rule”?

It’s the rule that says the IRS must have assessed the income tax debt at least 240 days before you file the actual bankruptcy petition. It simply means that legally your debt has to be actual assessed debt before it can be discharged.

You CANNOT Discharge Any Federal Tax Liens

Debts are easy to pay off, but don’t be fooled if any of your actual properties have what are called tax liens. You may pay off any debt, but if the IRS places a lien on, say, your house, that lien also has to be paid off before you can even sell the property if you want to. Ensure you have everything situated especially if your reason for Chapter 7 bankruptcy is to sell or liquidate any assets you own. Check appropriately and follow all the important steps to ensure you have absolutely nothing on your record at all.

All Other Taxes Don’t Apply in Chapter 7

It certainly won’t account for much when it comes to liquidation. However, this gives you all the important steps necessary to assess your situation. If you do have any long-term income tax debt that you still need to pay off, it’s always a great idea to consult a tax attorney or as a bankruptcy attorney and get things going on your end.

Many attorneys offer free consultations. Talk to a lawyer today for immediate peace of mind.

Written on behalf of David Shuster by


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