Generally, Taxes must be at least three years old and have been filed more than two years prior to the bankruptcy filing to be discharged.
For example, if the income taxes you owe are for one of the last three tax years, then they can’t be wiped out (discharged) in bankruptcy — you’ll continue to owe them at the end of a Chapter 7 bankruptcy case, or you’ll have to repay them in full in a Chapter 13 bankruptcy repayment plan.
If you need to discharge tax debts, Chapter 7 bankruptcy will probably be the better option — but only if your debts qualify for discharge (see below) and you are eligible for Chapter 7 bankruptcy.
You can discharge (wipe out) debts for federal and state income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:
If your taxes qualify for discharge in a Chapter 7 bankruptcy case, your victory may be bittersweet. This is because bankruptcy will not wipe out prior recorded tax liens. A Chapter 7 bankruptcy will wipe out your personal obligation to pay the debt, and prevent the IRS from going after your bank account or wages, but if the IRS recorded a tax lien on your property before you file for bankruptcy, the lien will remain on the property. In effect, this means you’ll have to pay off the tax lien in order to sell the property.
If you would like to speak with a knowledgeable attorney regarding the discharge of taxes in bankruptcy, contact the Hedtke Law Firm today to schedule a FREE initial consultation.