A common motivation people have for filing bankruptcy is that it will wipe out their tax debts. While some debts are discharged during bankruptcy, not all are. It depends, in part, on whether you filed for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Let’s take a deeper look at the taxes in bankruptcy you still owe.
Taxes You Still Owe After Bankruptcy
- Chapter 7 bankruptcy – You can discharge tax debts in Chapter 7 bankruptcy so long as they meet the following requirements.
- Income-based taxes. The only kind of debt that is dischargeable in Chapter 7 is that of federal or state income taxes.
- Due greater than three years ago. The taxes must be for a tax return that was due at least three years before you filed for bankruptcy.
- Filed at least two years ago. You must have filed the tax return two years or more prior to filing for bankruptcy.
- Assessed at least 240 days ago. Whoever the taxing authority is must have entered their calculated tax assessment for you into their records at least 240 days before you filed for bankruptcy.
- No fraud. You can never discharge debts from a fraudulent tax return. In addition, courts must have never found you guilty of tax evasion of any kind.
- Chapter 13 bankruptcy – Unlike in Chapter 7 bankruptcy, you cannot (for the most part) discharge debts in Chapter 13 bankruptcy. However, you may not have to pay them back in full. The amount you must pay back mostly depends on whether your tax debt is classified as a priority claim or a nonpriority claim.
- Priority. Unlike Chapter 7 bankruptcy, Chapter 13 allows you to pay back priority tax debts over the life of the plan, rather than immediately. This will likely save you from having to liquidate any assets you would have under Chapter 7.
- Nonpriority. Debts meeting the above criteria for in Chapter 7 bankruptcy are classified as nonpriority tax debt in Chapter 13 bankruptcy. This debt is only paid once priority debts are paid in full. You will likely only pay part of your nonpriority debt.
Even if you cannot discharge your taxes, filing for bankruptcy may will help you with the debt. Consider contacting a bankruptcy attorney, if you’re looking to find out more information about your options for dealing with tax debts.
Washington D.C. bankruptcy attorney Kevin D. Judd represents clients in bankruptcy court throughout the District and Maryland.