Taxes and Bankruptcy

Filing for bankruptcy can yield very positive results for people who owe the IRS. Once you file for bankruptcy, you are provided immediate paycheck protection. In addition, certain types of tax debt are dischargable. 

This means all the tax money you owe is wiped clean.  Not all types of tax debt qualify, so it’s important to know what type of IRS debt you have. 

In order for a tax debt to be considered general and unsecured, and therefore dischargable, it has to meet certain criteria.  First, it must be more than three years old before the first year of bankruptcy; Second, the return must have been filed at least two years prior to the bankruptcy filing; and third, the taxes must have been assessed at least 240 days before the bankruptcy claim was entered. 

Tax debt that is incurred within three years immediately proceeding a bankruptcy filing is considered priority and is not automatically discharged.  You will still have to pay on it after the bankruptcy is filed.  There is still a benefit to your bankruptcy in this case however, as your tax debt is no longer subject to penalties and interest. 

A tax lien trumps any other classification of tax debt.  In terms of bankruptcy though, a tax lien is not a nail in the coffin because it is only secured up to the amount of equity you have in your property.

Talk to a bankruptcy attorney to find out if your IRS debts can benefit from filing bankruptcy.