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Discharging tax debts in bankruptcy

There are many myths about bankruptcy and taxes. Some experts say that tax debts are not dischargeable. Others say they are.

In reality, some tax debts are dischargeable while others aren’t. Here are answers to common questions about tax debts and bankruptcy.

Can I discharge income taxes?

You can discharge income tax debt in Chapter 7 bankruptcy, but only if you meet the following conditions:

You can also discharge penalties and interest for income tax debt.

What if the IRS has a tax lien on my house for unpaid income taxes?

While you can discharge income tax debts associated with a lien if you meet the conditions described above, doing so will not automatically remove the lien. An attorney can give you advice on how best to deal with the lien after you bankruptcy.

Can I discharge payroll taxes for a business?

No, the only kind of tax debt you can discharge is for income tax. You cannot discharge payroll taxes, trust fund taxes or sales taxes.

Can bankruptcy help me deal with tax debts that aren’t dischargeable?

If you can’t discharge the debt, you may still be able to get some relief by filing Chapter 13 bankruptcy. You can place the tax debt in a Chapter 13 bankruptcy payment plan and pay it off over time without penalties or interest.