You can or can’t discharge your tax in a bankruptcy, it depends
By: Darrell Castle
Can you discharge your tax debts in bankruptcy?
Hi, I’m Darrell Castle and I’m an attorney licensed to practice law in the state of Tennessee and the answer to that question is YES and NO, depending on your situation, like most questions.
If you want to ask a lawyer, it depends. It depends on whether it truly is income tax and whether you filed your income tax returns on time. And whether you committed fraud or used a fake Social Security number or something like that. And whether the taxes are three years old.
So let me start over and say that you can discharge tax debts in bankruptcy – in Chapter 7 bankruptcy – if your tax debt is three years old.
So, for example, it’s a personal income tax that you owe. 2014 taxes are due April 15th, 2015. So, April 16th, 2018, the 2014 taxes would be dischargeable if you filed your returns, and you filed them on time – you actually filed them yourself, the IRS does not file them for you – and you did not commit fraud or use a fake ID or anything like that. Those are some of the rules about discharging your taxes in Chapter 7 bankruptcy.
Now, the other chapter – Chapter 13 – is another story. There, you’re not seeking to discharge taxes necessarily, but there you can combine taxes with other debts into a repayment plan – cut off the IRS’ collection efforts, stop them from ceasing your property and taking your wages – things like that – and pay those taxes over a period of 5 years at a lower payment perhaps than what the IRS demands from you. It is a way to control the creditor – the creditor in this case being the IRS.
So there are two different chapters that you can use to be rid of your tax debts – there are some arcane rules but they are easy to understand if you see a qualified bankruptcy practitioner.