Tax Debt & Bankruptcy

There are so many different kinds of taxes and the law is so complicated, that the best answer is: sometimes. Bankruptcy is about the only law more powerful than the IRS.

It’s that time of year – the start of tax filing season. Attorney Peter Francis Geraci answers your questions about tax debt and bankruptcy. Read Chapter 33 below or in PFG’s “Complete Book on Bankruptcy” @

CHAPTER #33 Can I Get Rid of Taxes with Bankruptcy?

Sometimes, if they are income taxes, you filed a truthful return on time, you just owed the tax and could not pay it, and more than 3 years have passed since the return was due (usually April 15 following the tax year), and the taxes have been assessed and more than 240 days have passed…

There are so many different kinds of taxes and the law is so complicated, that the best answer is: sometimes. Bankruptcy is about the only law more powerful than the IRS. Usually, only income taxes can be discharged. Sales or withholding tax cannot.

In order for income taxes to be dischargeable, you must have

1. filed your return on time, and

2. the date you filed your return must be more than 3 years ago. (April 15 is due date but can be April 16 or 18 because of weekends some years)

If your return was filed late, you need only wait two years after it was filed to have your income taxes eligible for discharge. If you didn’t file a return, your income taxes are not eligible for discharge.

If your income taxes do not fall under the above time periods, or if you did not file a return, you may be eligible to force a repayment plan on the IRS, if you have sufficient regular income, by proposing a Chapter 13 Debt Repayment Plan. In a Chapter 13, you can pay past due income taxes over as long as 5 years, with no further interest or penalty, in most cases, and the IRS cannot take collection action during the Chapter 13 Plan. Of course, you must pay any future income taxes on time, and you must file any tax returns not previously filed, as a condition of having your Chapter 13 approved.

There are many other kinds of taxes, and special rules apply to all of them. I make no guarantee that any tax is dischargeable, because of the complexity of the rules, and the policy of not making most taxes dischargeable. We list them on the petition, however, notify the IRS and proper governmental entities, and then if the tax is not discharged, it is possible to work out a repayment plan based on your bankruptcy budget which we prepare.

Problem: Donald and Regina filed their 1982 and 1983 returns on time, but didn’t have the money to pay the $4500 tax due on Donald’s part time job, and Regina’s unemployment money. They also owe $9,000 in unsecured credit. Now they are both working full time, but there is an IRS levy taking 80% on Donald’s check.

The Peter Francis Geraci Chapter 7 or 13 Solution: It appears that they can start fresh with no debt by filing a Chapter 7. Or, they can pay their debt over as long as 60 months, and their payment will be about $250 per month, including all costs.

Note: Unpaid income taxes can build up interest and penalties rapidly, so Chapter 13 cases are great for many tax debts.

Trust fund taxes, such as employee withholding amounts that were never paid to the government, are not dischargeable, although they can be paid back in full in a Chapter 13.

Dial 1-800-CALL-PFG for a free phone mini-consultation, or make an appointment online 24/7 at  Bankruptcy laws are in place to help you.  Who knows bankruptcy like Geraci Law?  Geraci Law has 30,000 5-star reviews 5starsince November 2016!


Author: Elizabeth Doren Paralegal at Geraci Law L.L.C.

I am a paralegal at Geraci Law L.L.C. (the greatest consumer bankruptcy law firm that ever was or will be!) I talk to thousands of people who are struggling financially.

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