June 26, 2015

There are certain categories of debt that cannot normally be discharged in a Chapter 7 bankruptcy case.  Among these is a liability for income taxes owed to the IRS or to the State, which can create significant difficulties for individuals who find they need protection under the Bankruptcy Code.
In certain circumstances, income taxes may be dischargeable, but it can be complicated to determine if your taxes may be discharged without a qualified bankruptcy attorney to assist you.  The Bankruptcy Code identifies the types of income tax debts that are not dischargeable by referencing the section of the Code related to debt priorities, and there the Code lays out a number of criteria to apply to determine if a debt would qualify for discharge.

In general, if an income tax return is for taxes due more than three years ago, was filed on time, and the tax debt associated with that year was assessed by the taxing authority more than 240 days before the Chapter 7 bankruptcy was filed, the taxes may be discharged in a Chapter 7 case.  This allows the taxing authority to reach back and collect on old income tax liabilities.  When taxes are unfiled, or are filed late, there are additional considerations in determining if a tax liability may be discharged in bankruptcy.
Where there has been a previous bankruptcy filing, determining if income tax debts are dischargeable becomes even more complex.  If the previous bankruptcy filing prevented the taxing authority from collecting on the income taxes in question, the “reach back” period for non-dischargeability may be suspended, or “tolled” for the period of that interference.  This may result in much older income tax liabilities being non-dischargeable.


Relief from income tax debts may be part of what motivates someone to consider filing for bankruptcy protection.  In certain circumstances, those tax debts may be discharged in a bankruptcy proceeding.  As with many things related to the Bankruptcy Code, the analysis of your situation may be complex, and will require an attorney with expertise in bankruptcy to properly advise you of how to gain the most benefit, and avoid unpleasant surprises.  If you are considering bankruptcy, or simply have questions about how to reduce the stress of your current financial position, please contact an attorney at our offices to discuss your individual situation.

Michael A. Spencer
Associate Attorney

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