Discharging Tax Debts by Filing Chapter 7 Bankruptcy: What You Need to Know

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Filing bankruptcy can help you get rid of your debt. To successfully pursue this course of action, you must first understand how bankruptcy works. Many people do not know that filing bankruptcy can help them discharge their tax debts, in addition to regular debts such as a credit card debt. Your debts must, however, meet certain criteria before you qualify to wipe them off through Chapter 7 Bankruptcy. Also, note you cannot discharge all of your tax debts by filing bankruptcy. To help you in understanding how bankruptcy works, let’s discuss some of the facts regarding Chapter 7 bankruptcy in this brief post.

When Can you Discharge Tax Debts?

There are more than a few requirements for a taxpayer to be able to discharge their tax debts in Chapter 7 Bankruptcy. These include:

Debt must be at least three years old

The tax debt must be due (including all valid extensions) at least 3 years before you filed for bankruptcy. So, if you disclosed the taxes in your 2009 tax return form and the extension to file the return expired in 2010, the tax will qualify for a discharge if you file bankruptcy in 2013.

You filed the return two years back

You must have filed a return for the tax debt you wish to discharge at least two years before filing for bankruptcy. Most courts do not regard a late return as a “return”, which may stop you getting your taxes wiped off. If you meet the other criterion, however, some courts may allow you to discharge the tax debt for which you filed the late return.

The tax debt must have been assessed 240 days back

The IRS must have assessed the tax debt to be discharged 240 days before you file for bankruptcy. The IRS may extend this limit if they signed an “offer in compromise” agreement with you, or you filed for a bankruptcy earlier.

You must not commit any fraud or willful evasion

The IRS must not find any evidence proving that you willfully committed fraud such as using a different social security number to evade paying your taxes.

Must Read: 4 Signs to Help You Avoid IRS Debt Tax Relief Scams?

Which Tax Debts Cannot be Discharged?

Individuals filing for Chapter 7 Bankruptcy cannot discharge most non-income related tax debts. These include:

Property Taxes

Individuals with any property tax they incurred within one year of filing bankruptcy cannot discharge the debt. You can, however, discharge any property tax that is older than a year from when you filed for bankruptcy.

Tax Lien

Although you owe no personal tax obligations and can stop the IRS from garnishing your bank account and wages – when you file for a Chapter 7 Bankruptcy – this does not free you from tax liens. Any tax liens recorded before you filed for bankruptcy remain on your property, which means you will have to pay the liens after you sell the property.

Must Read: IRS Tax Lien Assistance


Chapter 7 Bankruptcy cannot help you wipe off “trust fund” taxes such as Medicare, FICA, and any income tax that your employee is required to withhold from your paycheck. You also cannot discharge certain excise taxes, custom duties, and employment taxes.


Although filing Chapter 7 Bankruptcy can help you discharge your debts, including tax debts, the law has a number of clauses and subclauses you must consider. If you take the wrong steps such as misrepresenting information on your tax return to evade paying taxes, you may end up with penalties for bankruptcy fraud. Nick Nemeth at The Law Offices of Nick Nemeth can help you in understanding how bankruptcy works and provide you with detailed information on whether filing bankruptcy would be an ideal option for you to get rid of your IRS debt. To schedule a free no-obligation consultation please call us at (972) 627-4705, or fill out our contact form.

Discharging Tax Debts by Filing Chapter 7 Bankruptcy: What You Need to Know
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