Is tax debt discharged in Chapter 7 bankruptcy?

On Behalf of | May 9, 2019 | Chapter 7

Dealing with the Internal Revenue Service can be a nightmare if you are a Connecticut resident who cannot afford to pay the federal taxes you owe. However, if you try to avoid dealing with the IRS over the taxes owed, it can impose tax liens on your property that are even more burdensome. You may wonder if you are able to discharge your tax debt by filing for Chapter 7 bankruptcy. According to FindLaw, it may be possible to discharge some tax debt through Chapter 7, but only under certain circumstances. 

Particularly, it is in your interest to work proactively with the IRS to avoid a tax lien on your property because even if you succeed in discharging your tax debt through Chapter 7 bankruptcy, the lien will remain. Additionally, some types of tax debt are ineligible for discharge under any circumstance. For example, if you failed to file your taxes at all, you cannot discharge the resulting tax debt with bankruptcy.

The good news about filing for Chapter 7 bankruptcy is that it gives you a greater chance of discharging your tax debt than you would have if you filed Chapter 13. However, the IRS requires you to meet a complicated list of conditions to qualify for discharge of your tax debt. Examples of these conditions include the following: 

  • You must not have committed fraud or tax evasion
  • You must have filed a legitimate return
  • The liability must have been due at least three years before filing for bankruptcy

If you do not meet all of the conditions, including those not listed here, you do not qualify for discharge of your tax debt under Chapter 7 bankruptcy. However, Chapter 7 discharges many other debts, potentially freeing up funds for you to meet your tax obligations.

The information in this article is not intended as legal advice but provided for educational purposes only.