Published May 9, 2023

Taxpayers experiencing financial hardships may explore bankruptcy to discharge certain tax debts.

However, not all tax debts qualify for elimination, and the process is intricate.

This article examines the potential impact of bankruptcy on tax debt and provides insights into the complex process.

Owing money to the IRS creates significant financial stress, with accumulating tax debts leading to penalties, asset seizures, or wage garnishment.

While bankruptcy offers relief, understanding its rules and limitations regarding tax debt is crucial.

Understanding Tax Debt and Bankruptcy:

Tax debt owed to the IRS or state government includes unpaid taxes, penalties, or interest, often resulting from unfiled returns, underpaid taxes, or audits.

The IRS can enforce collection through wage garnishment, bank levies, or property seizures.

Filing for bankruptcy, a legal process discharging certain debts, provides a potential fresh financial start.

Types of Tax Debt:

Bankruptcy’s impact on tax debt varies. Priority tax debts, recent income-based taxes, assessed within the last three years, or those assessed after the bankruptcy filing, cannot be discharged.

Non-priority tax debts, older income-based taxes or penalties/interest, may be eligible for discharge based on specific conditions.

Eligibility for Bankruptcy:

Meeting eligibility requirements is crucial. The means test assesses one’s ability to pay obligations.

Failing the means test may limit eligibility to Chapter 13 bankruptcy, necessitating debt repayment over three to five years. Passing the test may qualify for Chapter 7 bankruptcy.

Chapter 7 Bankruptcy and Tax Debt:

In Chapter 7, non-priority tax debts may be dischargeable if specific conditions are met.

Criteria include the tax being income-based, the tax return filed at least two years before bankruptcy, the tax debt due at least three years before bankruptcy, and IRS assessment at least 240 days before bankruptcy.

Chapter 13 Bankruptcy and Tax Debt:

Chapter 13 involves debt repayment over a period. Tax debts are generally considered priority debts, requiring full repayment.

Some non-priority tax debts may be dischargeable under specific conditions, akin to Chapter 7. Chapter 13 allows creating a repayment plan for other debts, aiding financial management.

Dischargeability of Tax Debt in Bankruptcy:

Not all tax debts are dischargeable. Priority tax debts, recent income-based taxes, or those assessed post-bankruptcy filing, remain non-dischargeable.

Non-priority tax debts may be eligible, but filing appropriate paperwork and following procedures is essential for successful discharge.

Navigating bankruptcy’s impact on tax debt demands careful consideration of eligibility, types of debts, and specific conditions.

Understanding these nuances ensures informed decisions and a smoother process.


Exceptions to Dischargeability of Tax Debt

Exceptions exist regarding the dischargeability of tax debt in bankruptcy. Instances of fraud or willful tax evasion may render the tax debt non-dischargeable.

Similarly, failure to file a tax return or filing a fraudulent return can impact dischargeability. Seeking advice from a bankruptcy attorney is crucial to assess any exceptions applicable to your case.

Timing Considerations for Tax Debt in Bankruptcy:

The timing of a bankruptcy filing plays a crucial role in determining the dischargeability of tax debt.

Filing before the IRS assesses your tax debt or within the three-year waiting period for older tax debts may affect eligibility for discharge.

Consulting with a bankruptcy attorney helps determine the optimal timing based on your unique circumstances.
Click here for understanding multiple bankruptcies

Alternatives to Bankruptcy for Tax Debt Relief:

Bankruptcy isn’t the sole option for alleviating tax debt. Depending on your situation, alternatives like an offer in compromise, an installment agreement, or currently not collectible status may be available.

These options enable negotiation with the IRS for reduced or postponed payments, rather than a complete discharge.

Seeking guidance from a tax professional or bankruptcy attorney helps determine the most suitable course of action for your specific circumstances.


Hiring a Bankruptcy Attorney

Navigating bankruptcy, especially concerning tax debt, requires a qualified attorney to protect your rights.

Before filing, gather financial information, consult an attorney, and attend credit counselling.

Understanding eligibility, exemptions, and discharge rules for tax debt is crucial. Seek professional advice for tailored solutions.

Understanding the Impact of Bankruptcy on Various Tax Debts

Filing for bankruptcy is a significant financial decision that individuals may consider to alleviate various debts, including tax obligations.

However, the impact of bankruptcy on different types of tax debts can vary.

In this article, we will explore the questions: Does filing bankruptcy clear tax debt?

Does Filing Bankruptcy Clear Tax Debt?

Filing for bankruptcy can provide relief for certain types of tax debts, but not all tax obligations are dischargeable.

Priority tax debts, such as recent income-based taxes, are generally not eligible for discharge.

However, non-priority tax debts, like older income-based taxes, may be dischargeable under specific conditions.

We will delve into the criteria for dischargeable tax debt in both Chapter 7 and Chapter 13 bankruptcies.

Does Bankruptcy Clear Property Tax Debt?

Property tax debts are specific obligations that homeowners may worry about.

Whether bankruptcy clears property tax debt depends on the type of bankruptcy filed and the specific circumstances.

We will explore the nuances of property tax debt dischargeability and the considerations homeowners should keep in mind.

Does Bankruptcy Clear IRS Tax Debt?

IRS tax debt is a distinct category that comes with its own set of rules and considerations in bankruptcy.

We will discuss the eligibility criteria and conditions under which IRS tax debt may be dischargeable in both Chapter 7 and Chapter 13 bankruptcies.

Understanding the specifics of dealing with IRS tax debt in bankruptcy is crucial for individuals seeking relief.

Timing Considerations for Tax Debt in Bankruptcy:

The timing of a bankruptcy filing plays a crucial role in determining the dischargeability of tax debts. We will explore the importance of timing, including considerations such as when the IRS assessed the tax debt and the waiting period for older tax obligations.


  1. Can all tax debts be discharged in bankruptcy?

    • No, only specific tax debts meeting certain conditions may be eligible for discharge.
  2. Which is better, Chapter 7 or Chapter 13 bankruptcy, and why?

    • Chapter 7 involves asset liquidation, while Chapter 13 requires debt repayment over three to five years.
  3. Will filing for bankruptcy stop tax collection actions?

    • Yes, bankruptcy typically halts tax collection actions, such as wage garnishment and bank levies.
  4. Can I file for bankruptcy if I have unpaid taxes?

    • Yes, you can file, but discharging tax debt in bankruptcy has complex rules.
  5. Do I need a bankruptcy attorney to file for bankruptcy?

    • While not mandatory, hiring an attorney is highly recommended for effective navigation and protection of rights

Contact Us

Get Your Credit Repaired With

Google Review:




We also would counsel you on real, legal, and ethical credit repair for clients rebuilding their life and credit ratings after hardship. Achieving financial freedom is the ultimate dream allowing you to live the life you want to enjoy. Get the help of a professional credit repair company by contacting us.

Our credit restoration services are tailored to your unique situation, and we never make you pay for anything you don’t need. When you sign up for either our Essentials or Essentials Plus packages, you can rest assured that you’ll be receiving the bare minimum of care necessary for your specific situation. You can opt for additional customization options to further tailor our offerings to your specifications. In this manner, you won’t overpay for perks you don’t use. This is the essence of adaptability.