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Chapter 7 Bankruptcy and IRS Tax Debt

Does a chapter 7 also take care of money owed to the IRS i have gotten 3 different answers need to know before I file.  Thanks.  (Posted by Roadking on The Forum.)


Editor's Response:

In some cases, a Chapter 7 bankruptcy filing will discharge federal income tax debt (but never other types of taxes such as payroll taxes), but only if all of these conditions are met:

(1) You did not commit fraud or willful tax evasion;
(2) The debt is at least three years old (meaning the tax return must have been due at least three years before you filed for bankruptcy;
(3) You filed a tax return for the debt in question at least two years before filing for bankruptcy; and
(4) The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. This is known as the "240day rule."

Even if your debt satisfies all of these conditions, filing a Chapter 7 bankruptcy case will not wipe out a prior tax lien on your property filed by the IRS before your bankruptcy filing. The IRS will not be able to go after your bank account or to garnish your wages, but the lien will remain in place, and you will have to pay it off before you can sell your property.

Many bankruptcy attorneys offer free initial consultations at which this type of question can be answered (with emphasis on your specific facts and circumstances).  For more information or to post a question, visit our MA Bankruptcy Discussion Forum.

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