Conditions to Meet to Discharge IRS Tax Debt Through Bankruptcy

While many people will tell you that you cannot discharge any tax debt through bankruptcy, the truth is that it’s not impossible, just more difficult than discharging other types of debt. There are some situations where you can discharge some or all of your tax debt during the bankruptcy period, but you must meet specific requirements. According to the IRS, there are three items you must meet in order to discharge this debt. Note that this only refers to Chapter 7 bankruptcy—you cannot discharge tax debt through Chapter 13.


You Must Have Filed Taxes for Four Years


The IRS requires four years of filed tax returns in order to consider discharging your tax debt. This means if you’ve tried to avoid your tax debt by simply not filing taxes, you won’t be eligible.


You Must Continue to File Returns as Normal


The bankruptcy process doesn’t affect your current tax return. This means if you’re filing for bankruptcy near April 15, you must still file your current tax return or request an extension. If you don’t, even if the bankruptcy is almost finalized, your tax debt won’t be eligible to be discharged. In the worst-case scenario, failing to file a tax return may even result in your bankruptcy case being completely dismissed by the court.


You Must Pay Your Taxes that Come Due During the Bankruptcy


If you have any taxes that come due while you’re proceeding through your bankruptcy, you need to pay them or request an extension. Do not simply assume they will be rolled into the bankruptcy—if they’re not part of your declared debt, chances are they will not be. Missing a payment will lead to fines and may result in your tax debt not being discharged. Again, it may also result in your case being dismissed.


Work with an Expert During any Bankruptcy


Every bankruptcy is different, and the overall bankruptcy process can be confusing for those who haven’t gone through it before. That’s why you need to make certain you’re working with an experienced bankruptcy attorney. The team at Michael F. Kanzer & Associates is here to assist you during every step of your bankruptcy. Contact us today to set up your free consultation.

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