Tax Debt and Bankruptcy

: Chris Lee Law Firm

  Filed under: Taxes

tax debtMany people wonder if tax debt may be included in bankruptcy.  The answer is “yes” as long as certain conditions are met.  Essentially, the age of the back taxes and reason they are owed are the primary factors when considering whether or not tax debt can be included in a bankruptcy.

Including Tax Debt in Bankruptcies

To include tax debt in a Chapter 7 bankruptcy, the tax must have been due greater than three years before the bankruptcy.  Also, the back taxes owed can’t be for reasons of tax evasion.  The IRS must have determined that the tax was due greater than eight months prior to the bankruptcy filing.  Finally at least two years must have passed since the taxes were filed.  Under Chapter 13 bankruptcy, the tax debt is simply reorganized with all of the other debt and included in the repayment plan.

Bankruptcy is not always the best way to eliminate tax debt, however.  Those who, otherwise, have relatively decent debt should first meet with an attorney to attempt to get the back taxes reduced or to work out some sort of payment plan prior to filing for bankruptcy.  There are lawyers who specialize in tax law and can advise clients whether bankruptcy is the preferable route for their situation.  For some, there may be other alternatives and bankruptcy is strongly discouraged as an out for those who simply want to eliminate tax debt.  It’s even possible that one may not qualify to file for bankruptcy in some states if their financial situation is determined to one that makes them capable of paying the debt, including back taxes, owed.


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