Due to precautions related to COVID-19, we have expanded our options for remote consultations. Please contact our office to discuss whether a full phone consultation or video conference is appropriate for your situation.

Can bankruptcy help with your income tax debt?

On Behalf of | Feb 28, 2022 | Chapter 7

As Tax Day gets closer, you dread finding out how much more money you’re going to owe the IRS in addition to the tax debt you still haven’t paid. A common question that people ask is whether filing for bankruptcy can help them get out from under their tax debt.

Some income tax debt can be discharged if you qualify for Chapter 7 bankruptcy. (If you file for Chapter 13, it would be factored into your repayment plan.)

Conditions for discharging income tax debt

If you file for Chapter 7, you may be able to discharge income tax debt that is at least three years old (from income tax returns filed at least three years ago). You can’t discharge more recent income taxes that you owe. Following are a few of the additional restrictions:

  • You must have filed returns for the year(s)’ debt you’re seeking to discharge, and they must have been filed no more than two years prior to your bankruptcy filing.
  • You can’t be guilty of any kind of intentional tax evasion or fraud.
  • You can’t discharge debt for any years that you didn’t file a return.

There are other conditions and restrictions, so it’s important to find out how much of your income tax debt you can discharge if you file for Chapter 7. If you can’t discharge as much as you need to, the IRS has payment plan options for taxpayers as well as offers of compromise, which can lessen the total amount you owe. 

Even if you can’t discharge as much of your tax debt as you’d like, bankruptcy could still help you discharge other debts so that you’re in a better position to pay the IRS what you owe. It’s wise to explore all of your options and decide what’s best for you.