Whether you’re listening to the radio or watching cable television, you may have heard or seen commercials, which claim bankruptcy can eliminate tax debts. But the truth is that most tax debts remain during bankruptcy.
If you file for Chapter 7 bankruptcy, you will still owe tax debts once your bankruptcy case ends. If you file for Chapter 13 bankruptcy, you will have to completely repay your tax debts through a repayment plan.
However, it is possible to discharge tax debts through Chapter 7, if all the following conditions apply to your case:
- Your tax debts are related to only income taxes
- You didn’t file a fraudulent tax return or attempted to willfully evade paying taxes
- The tax debt is at least three years old
- You filed a return for the debt who want to discharge at least two years prior to declaring bankruptcy
- At least 240 days before you file a bankruptcy petition, the IRS evaluated your income tax debt
If you meet all these requirements, then you could discharge your tax debts through Chapter 7 bankruptcy. But if the IRS placed a tax lien on your property prior to filing for bankruptcy, the lien will not be removed. In other words, you need to pay off the tax lien to sell the property.
Tax debts that are not dischargeable in Chapter 7 include:
- Tax dets from tax returns that were unfiled
- Tax penalties due to ineligible discharges
- Taxes that were withheld by an employer or trust fund taxes
If you cannot discharge tax debt through Chapter 7, there are other options. For example, you could enter an installment agreement with the IRS or compromise with the IRS to receive a tax debt settlement for a lower amount.