Can Tax Debts Be Discharged When You File For Chapter 7 Bankruptcy?

16 December 2014
 Categories: , Blog


Getting rid of your tax debts is not as simple as filing for bankruptcy. Although some of your tax debts can be discharged during a bankruptcy, not all are eligible. Whether or not a judge will dismiss your tax debts when you file for Chapter 7 bankruptcy depends on certain conditions. 

Discharging the Debt

The judge can only discharge your tax debts if your situation meets certain criteria. The tax has to be an income tax debts. Debts such as payroll taxes must remain. Other conditions that must exist include:

  • Your tax return was filed. You must have filed a tax return for the owed debts at least two years before attempting to have it discharged during bankruptcy.
  • There was no fraud. Your debts cannot be discharged if you committed fraud when filing your taxes. Fraud can include deliberately citing less income on your return.
  • The debt is older than three years. You can only ask for a discharge of tax debts that are older than three years old.
  • Your debt has been evaluated. You have to show that the Internal Revenue Service has evaluated your debt at least 240 days prior to your bankruptcy petition.

If you have not met the conditions listed, the chances of the judge ruling to discharge your debts are slim. Any debts that do meet the qualifications can be discharged. Even if one year's worth of debts are not dischargeable, there is a chance another year's debts might qualify. 

Discharging a Lien

If the Internal Revenue Service has a tax lien on your property, filing for bankruptcy cannot help you. Even if a judge has ruled that your tax debts do qualify to be discharged, the agency still retains the lien on your property. 

In order to gain control over your property, you will need to pay off the tax debt. In this instance, winning the right to discharge your debt has no bearing on your financial obligation to the agency.

If the agency has not yet filed a lien, you are in luck. Once you file the bankruptcy, the agency cannot file a lien on your property. It is important that you file your petition as soon as you determine you need and want to.

The best way to judge whether or not your tax debts are dischargeable is to talk to a tax attorney about them. The attorney could possibly help you work out other methods of dealing with the owed taxes if you are not eligible for a discharge.