Debts
Can bankruptcy wipe out income tax debt?
Sometimes. Older income tax debt can be discharged when the return was due more than three years before you file for bankruptcy, the return was actually filed and not filed late within the two years before filing, the tax was not assessed in the 240 days before filing, and there was no fraud or evasion. Recent income taxes are priority debts: Chapter 7 does not discharge them, and a Chapter 13 plan must provide for paying them in full.1 2 3 4
Connect to a bankruptcy lawyerIncome taxes are not automatically off limits in bankruptcy, and they are not automatically erased either. The answer comes down to dates: when the return was due, when you filed it, and when the tax was assessed.
General information, not legal advice. Rules and amounts change; check with a lawyer or the court before you act.
In this guide
Which income taxes can be discharged?
The law does not list dischargeable taxes. It lists the taxes that are not discharged, and an income tax debt has to stay clear of every item on that list. Each tax year is tested separately.1 2
- Whether and when you filed the return. A tax is not discharged if a required return was never filed, or if it was filed late and within the two years before the bankruptcy filing.1
- The assessment date. A tax is a priority debt if it was assessed within 240 days before the bankruptcy filing. It is also a priority debt if it has not been assessed yet but still can be after the case begins.2
- Honesty. A tax is not discharged if you made a fraudulent return or willfully tried to evade or defeat the tax.1
The IRS sums up the result in one line: a discharge eliminates personal liability for tax debts older than three years unless the returns were filed late. If any of your returns were late, get advice before relying on these rules.5
Can the waiting periods be extended?
Yes, and this is easy to miss. The 240 days do not count time when an offer in compromise was pending or in effect, plus 30 days. They also do not count time when a stay from an earlier bankruptcy case was in effect, plus 90 days.2
The time periods are also suspended while a collection hearing or appeal that you requested blocks collection, and while an earlier bankruptcy case blocked collection, plus 90 days in each case. A tax that looks old enough on the calendar may not be.2
What counts as a filed return also matters. A return must meet the requirements of the tax law that applies, including its filing requirements, and some returns that a tax agency prepares for a taxpayer do not count. A tax professional or lawyer can check your account transcripts for the exact dates.1
What happens to income tax debt in Chapter 7?
A tax that passes every test is discharged like other unsecured debt. A tax that fails any one of them is not, and you still owe it after the case.6 7 1
While the case is open, the automatic stay stops most collection activity. Taxes that arise after the bankruptcy filing are not discharged.8 5
What happens in Chapter 13?
Chapter 13 does not erase recent taxes, but it gives you time. Priority tax claims must be provided for in full in the plan unless the tax agency agrees to different treatment, and the payments are spread over a plan that usually lasts three to five years.3 4
Older taxes that are not priority debts are treated as unsecured claims, which the plan does not have to pay in full. The IRS describes a Chapter 13 discharge as eliminating tax debts paid in the plan and tax debts older than three years unless the returns were filed late.4 5
Some tax debts survive a completed plan no matter what: taxes with an unfiled or late-filed return, and taxes the debtor tried to evade.9
Chapter 13 also comes with filing duties. The IRS says a person considering Chapter 13 must file all required returns for tax periods ending within four years of the bankruptcy filing, keep filing during the case and pay current taxes as they come due. Failing to do so may result in the case being dismissed.5
| Kind of tax debt | In Chapter 7 | In Chapter 13 |
|---|---|---|
| Recent income tax that has priority status1 2 3 4 | Not discharged | Must be provided for in full in the plan |
| Older income tax that passes every test5 4 | Discharged | Treated as an unsecured claim; discharged when the plan is completed |
| Tax with an unfiled return, a late return within the two years before filing, or fraud or evasion1 9 | Not discharged | Not discharged |
| Loan or credit card debt taken on to pay a nondischargeable tax1 4 | Not discharged | Can be discharged |
| Tax that arises after the bankruptcy filing5 | Not discharged | Not discharged |
What about tax liens and penalties?
A discharge ends your personal liability for a tax. It does not remove a valid lien. A tax lien that was not removed in the case stays on the property it is attached to, and the creditor may enforce it.10
Exemptions give less protection against taxes than against ordinary debts. Property you protect with an exemption stays liable for taxes that are excepted from discharge.11
Tax penalties have their own rule. A penalty is outside the exception for government fines and penalties when it relates to a tax that is itself dischargeable, or when it was imposed for a transaction or event more than three years before the bankruptcy filing.1
Are there options besides bankruptcy?
The IRS names a payment plan and an offer in compromise as other options for past due federal taxes you cannot pay.5
One caution if you are weighing both routes. Time when an offer in compromise is pending or in effect is not counted in the 240 days, so applying for one can push back the date when a tax could be discharged.2
Common questions
Can I discharge taxes for a year when I never filed a return?
No. A tax for which a required return was not filed is not discharged, in Chapter 7 or at the end of a Chapter 13 plan.1 9
I filed my return late. Does that matter?
It can. A tax is not discharged if the return was filed late and within the two years before the bankruptcy filing, and the IRS's own summary says older tax debts are discharged unless the returns were filed late. Ask a lawyer about any late return.1 5
Will bankruptcy remove a federal tax lien?
Not by itself. A valid lien that was not removed in the bankruptcy case remains after the discharge, even though your personal liability for the debt ends.10
I put my tax bill on a credit card. Is the card debt discharged?
In Chapter 7, a debt taken on to pay a tax that would not be dischargeable is itself not discharged. In Chapter 13, debts incurred to pay nondischargeable taxes are among those that can be discharged.1 4
Do I have to be caught up on tax returns to file Chapter 13?
The IRS says you must file all required returns for tax periods ending within four years of your bankruptcy filing, and keep filing during the case.5
Sources
Official courts & government references- 11 U.S. Code § 523(a)(1) (Cornell LII)
- 11 U.S. Code § 507(a)(8) (Cornell LII)
- 11 U.S. Code § 1322(a)(2), (a)(4) (Cornell LII)
- Chapter 13 - Bankruptcy Basics (uscourts.gov)
- Declaring bankruptcy (irs.gov)
- 11 U.S. Code § 727(b) (Cornell LII)
- 11 U.S. Code § 301(b) (Cornell LII)
- Glossary of Legal Terms (uscourts.gov)
- 11 U.S. Code § 1328(a) (Cornell LII)
- Discharge in Bankruptcy - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 522(c)(1), (f)(1)(A) (Cornell LII)