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Can you discharge your tax debt in Chapter 7 bankruptcy?

On Behalf of | Apr 5, 2019 | Bankruptcy, Chapter 7 Bankruptcy

As Tax Day nears, it seems like a good time to look at whether tax debts can be discharged if you file for bankruptcy. It’s possible to discharge it if you file for Chapter 7 bankruptcy, but a number of criteria need to be met.

The debt must be associated with a tax return due three or more years before the bankruptcy filing. Therefore, to discharge any tax debts from this year’s tax return (assuming that you didn’t get an extension), you would have to wait until April 2022

The return that the debt is associated with must have been filed at least two years before the bankruptcy filing. Using the example above, say that you don’t get around to filing your return until June of next year. You would have to wait until June 2022 to include the debt in your bankruptcy.

The Internal Revenue Service (IRS) must have assessed the tax at least 240 days before the bankruptcy filing. That timeframe would typically be relevant only if the IRS determined that you owed a balance some time after your tax filing or if you self-reported that you owed money to the IRS.

Someone cannot discharge a tax debt if they filed a fraudulent or frivolous tax return or if they’re guilty of tax evasion or didn’t file a return for the year with which the debt is associated. Further, if a person wants to discharge their tax debt in bankruptcy, they must prove that they’ve filed tax returns for the past four years.

As you can see, you must have made a reasonable attempt to keep up with your obligations to the IRS before you can discharge past tax debt. Your bankruptcy attorney can provide more information if you seek to do this.

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