Yes! A common bankruptcy myth is that taxes can never be discharged.

The real answer is more complicated.

Some older income-tax obligations may be dischargeable in bankruptcy if they satisfy applicable bankruptcy requirements. Other taxes may not be dischargeable but can sometimes be addressed through Chapter 13.

Tax cases are highly dependent on dates and the type of tax involved.

Can Income Taxes Be Discharged in Chapter 7?

Certain income-tax debts may qualify for discharge if statutory requirements are satisfied.

The analysis can involve:

• The tax year
• When the return was due
• When the return was actually filed
• When the tax was assessed
• Whether returns were timely filed
• Whether extensions were obtained
• Prior bankruptcy cases
• Offers in compromise
• Tax litigation
• Fraud or tax-evasion issues

This is why someone with significant tax debt should not rely on a simple online rule or date calculator.

Are All Taxes Treated the Same?

No.

Income taxes, payroll taxes, trust-fund taxes and other tax obligations can receive very different bankruptcy treatment.

For example, certain employment-tax obligations present issues that are substantially different from an individual’s older personal income-tax liability.

Can Chapter 13 Help With Taxes?

Yes, potentially.

Even when a particular tax cannot be discharged, Chapter 13 may provide a structured method for addressing tax obligations through a court-approved repayment plan.

The bankruptcy treatment depends upon how the particular tax claim is classified.

What About Tax Liens?

A discharge of personal liability and treatment of an existing tax lien are separate issues.

If the IRS or another taxing authority has filed a tax lien, your attorney needs to evaluate the lien, the property to which it attaches and the effect bankruptcy will have on it.

Do not assume that discharging a tax debt automatically makes a previously filed tax lien disappear.

Why Timing Matters

Tax dischargeability is unusually sensitive to timing.

Filing a bankruptcy case too early can potentially change the treatment of a tax debt that might receive different treatment if the bankruptcy were filed later.

That makes pre-bankruptcy tax analysis particularly important.

Frequently Asked Questions

Can Chapter 7 wipe out IRS debt?

Certain qualifying income-tax debts can potentially be discharged. Many other tax obligations cannot.

Can Oklahoma state income taxes be discharged?

State income-tax obligations may also require analysis under bankruptcy discharge rules and applicable tax law.

What if I haven’t filed my tax returns?

Unfiled or late-filed returns can significantly affect bankruptcy options. Tell your bankruptcy attorney exactly which returns were filed and when.

Can Chapter 13 help even if my taxes aren’t dischargeable?

Potentially. Chapter 13 may allow certain tax debts to be addressed through a repayment plan.

Free Bankruptcy Consultation for Oklahoma Tax Debt

If tax debt is one of the reasons you are considering bankruptcy, bring your tax information to your bankruptcy consultation.

Brown Law Firm can evaluate your tax obligations together with your other debts to determine whether Chapter 7 or Chapter 13 may provide relief.

Contact Brown Law Firm for a free bankruptcy consultation to discuss your IRS debt, Oklahoma tax debt and other financial obligations.