Most Common Questions about Bankruptcy and Income Tax Debt

Bankruptcy and Income Tax Debt

Dealing with income tax debt can be frustrating and for some, overwhelming.  Bankruptcy has been known to help deal with credit card debt , medical bills and even helping people keep their homes, and the process may help with income tax debt.  It’s not uncommon for consumers to ask about bankruptcy and how it can help them deal with the IRS.

The following questions are often asked by those considering filing:

Can Bankruptcy Discharge My Tax Debt?

This depends on your unique situation and whether or not your income tax debt qualifies.  If you file a Chapter 13 bankruptcy , tax debts are repaid in a structured payment plan.  In a Chapter 7 , the debt in question needs to meet the following conditions to be discharged:

  • The tax debt is accessed by the IRS at least 240 days before bankruptcy filing.
  • The debt in question is income taxes and it is at least 3 years old.
  • Tax returns were filed for the past 2 years before filing for bankruptcy.
  • No tax fraud or evasion has been committed.

Is Bankruptcy an Option for Tax Settlement?

This often depends on your situation. If a Chapter 7 bankruptcy isn’t an option, a Chapter 13 could be another solution depending on qualifications.

Does Bankruptcy Remove Tax Liens?

Chapter 13 can help remove tax liens under the repayment structure.  Once you successfully pay the amount under the plan the lien can be removed.  Removing a lien under Chapter 7 may be challenging unless there is a solution to satisfy the lien.

What if I Don’t Qualify to Have My Tax Debt Discharged in Chapter 7?

A Chapter 13 bankruptcy may allow you to make payments based on your ability.  The IRS also offers different solutions to help settle your debt including Offer in Compromise and installment payments.  Review your situation with a qualified attorney to learn if bankruptcy is the option for you.