IRS Debt in Bankruptcy

If you are past due on your taxes, you are likely wondering if you can discharge the debt in your bankruptcy. It is important to have a seasoned bankruptcy attorney review your taxes and help you understand what is dischargeable because some taxes can be eliminated while others cannot.

If you did not file your income tax return with the Internal Revenue Service (IRS), the tax debt does not qualify to be discharged. If the IRS filed a tax return on your behalf, it is not considered to be a filed tax return making your tax debt dischargeable. Your federal income tax debt should be eliminated in your bankruptcy if:

  • At least two years prior to your bankruptcy filing, you filed your tax return for the tax year(s) you are seeking to discharge
  • The tax debt that your are trying to discharge was due at least three years prior to your bankruptcy filing
  • The IRS has not assessed your liability for the taxes you are trying to eliminate within the 240 days preceding your petition date
  • You did not intentionally and willfully try to avoid paying your taxes

If you have tax liens recorded against you and you are considering filing a personal bankruptcy, it is important to understand how they will be handled in your case. Your personal liability to pay the tax lien is discharged in your bankruptcy filing; however, the lien is still valid.

What does this mean? In short, the creditor holding the lien cannot use collection efforts (lawsuits, garnishments, etc.) against you to satisfy the debt. Additionally, discharged creditors cannot pursue assets that you acquire after the bankruptcy, or assets that you exempted in your filing. So, if your bankruptcy discharge applied to older taxes, the taxing authority cannot garnish your future paychecks.

However, a lien against your property may survive the bankruptcy. A properly perfected tax lien can attach to all of your personal and real property in the county where it is recorded. The important determination is how valuable the property is that the lien attaches to. The IRS will not expend the time and money to pursue a tax sale if the property has only minimal value, which is often the case.

It is also important to note that tax liens expire. The statute of limitations for most federal tax liens is 10 years from the date the tax was assessed (not the date the lien was recorded). As a result, many people rely on the passage of time to resolve their tax lien after a bankruptcy filing. It may also be possible to negotiate the release of the lien for a small settlement payment.

No two cases are identical and how to handle taxes in a bankruptcy filing can be a complex matter. To get the legal help you need, call us to schedule a free consultation.


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