Does bankruptcy clear tax debt? - CBS News
Clearing your IRS tax debt by filing for bankruptcy may not be as simple as you think.
www.cbsnews.comYou generally can file bankruptcy even if you owe taxes, but whether the tax debt gets discharged depends on the type of tax and key timing rules (especially for federal income taxes).[2][4]
Latest takeaways (what the news/updates are emphasizing)
- Recent commentary and case coverage continues to focus on whether a debtor’s taxes qualify for discharge under the bankruptcy “eligibility” tests, which can be outcome-determinative.[1]
- Articles aimed at consumers stress that bankruptcy is not automatically blocked just because you have tax debt; the real issue is what part (if any) is dischargeable.[2]
When tax debt can be discharged (high-level)
For U.S. federal income tax debt in Chapter 7, the common “meets all requirements” summary is that the debt may be dischargeable only if conditions are met, such as:
- The tax return was due at least 3 years before bankruptcy,
- The return was filed at least 2 years before bankruptcy,
- The IRS assessed the tax at least 240 days before bankruptcy,
- The return wasn’t fraudulent and there wasn’t tax evasion.[4]
If those requirements aren’t satisfied, the tax may be non-dischargeable (even though bankruptcy may still help with other debts).[4]
Requirements while the case is pending (IRS-specific)
The IRS also notes several ongoing duties if you’re declaring bankruptcy, including:
- You must file all required tax returns for tax periods ending within the relevant window,
- You generally must keep filing required returns and handle current taxes appropriately (e.g., pay as they come due),
- Failure to file/paying current taxes during the case can lead to dismissal.[3]
Quick questions (so I can narrow it down)
1) Is your tax debt federal income tax (IRS), state/local, payroll taxes, or something else?
2) Are we talking Chapter 7 or Chapter 13?
3) Roughly what years are the tax liabilities (e.g., “2019–2021”), and have you filed the returns?
If you answer those, I can tell you what’s most likely dischargeable vs not, and what strategy people usually use (Chapter 7 vs 13, negotiating payment plans, etc.).