People turn to bankruptcy because it can help them get out from under crushing debt. Bankruptcy, however, does not deal with all tax debts. Older income taxes have the best chance of qualifying. Recent taxes, payroll taxes, and debts tied to fraud or tax evasion are usually treated differently.

The determining factor is the date that the debt was created. You need to know when the return was due, when you filed it, and when the IRS assessed the tax. Any previous bankruptcy filing or offer in compromise may also affect the calculation.

A few days can change the result. Filing too early could leave you responsible for a tax debt that might have become dischargeable if you had waited. That is why an attorney should review your IRS transcripts before recommending a filing date.

Which IRS Debts May Qualify for Discharge in Bankruptcy

Older personal income tax debt may qualify when it meets several requirements. The return generally must have been due at least three years before the bankruptcy filing. The IRS usually must have assessed the balance more than 240 days before the case begins.

Late returns create another timing issue. A late return generally must be submitted at least two years before the bankruptcy petition, but late-return cases can be complicated. The way a court treats the return may depend on the facts and the law that applies in that jurisdiction.

The debt also cannot come from a fraudulent return or a deliberate effort to avoid paying taxes. Meeting one deadline is not enough. You must review each requirement for every tax year.

Why Recent Tax Debts Usually Remain After Filing

Recent income taxes are commonly treated as priority debts. Chapter 7 generally does not discharge priority tax debt. In Chapter 13, the repayment plan normally must pay priority claims in full unless the IRS agrees to different treatment.

Some tax debts receive even less favorable treatment. Taxes withheld from an employee’s paycheck belong to the government. If an employer fails to send that money to the IRS, bankruptcy usually will not erase the resulting trust fund tax debt.

Taxes involving fraud, evasion, or returns that were never filed can also remain due after the case ends.

How Tax Return Dates Affect Your Bankruptcy Case

Tax discharge questions require more than checking the year printed at the top of a return. Your attorney needs the original due date, including any extension, the date you actually filed, and the IRS assessment date.

Those dates do not always appear on the tax return itself. IRS account transcripts provide a clearer history of filing, assessment, payments, penalties, and other activity.

A previous bankruptcy or offer in compromise can pause certain time periods. That means a debt that appears old enough may still fail the timing tests.

Chapter 13 also requires you to address missing returns. You must file required returns for tax periods ending during the four years before the bankruptcy filing. Once the case begins, you need to keep filing new returns and paying current taxes. Falling behind may prevent plan confirmation or lead to dismissal.

What Happens to Tax Liens After Bankruptcy

Discharging a tax debt does not always remove a federal tax lien. Suppose the IRS filed a valid Notice of Federal Tax Lien before you filed bankruptcy. The discharge might end your personal responsibility for a qualifying debt, but the lien may stay attached to property you owned when the case began.

You need to understand this distinction if you own real estate, business equipment, and a vehicle. This can also apply to other important assets. The IRS may retain rights against that property even when it can no longer collect the discharged debt directly from you.

You need to review the lien amount, property value, other secured debts, and available equity. Bankruptcy may resolve personal debt without fully addressing the property issue.

When Chapter 13 Can Help You Repay IRS Debt

Chapter 13 gives people with regular income a way to reorganize debt through a court-approved repayment plan. Most plans last three to five years.

Filing usually activates the automatic stay, which pauses many IRS collection actions. Instead of dealing with levies, garnishments, or repeated collection notices, you make payments according to the plan.

You generally must pay priority tax claims in full during the case. Older nonpriority tax debts may be treated more like credit card or medical debt. Depending on your income, expenses, assets, and other obligations, those balances may receive partial payment before the remaining eligible debt is discharged.

You must complete the plan and remain current on taxes that come due after filing. Chapter 13 is not a way to ignore new tax bills while paying old ones.

Contact Kain + Henehan for Help With Bankruptcy

Owing the IRS does not automatically make bankruptcy a bad option. It does mean the case needs careful planning.

At Kain + Henehan, we can review your tax returns, IRS transcripts, assessment dates, liens, payment history, income, and other debts. We will explain which balances may qualify for discharge, which debts would need to be paid, and which form of bankruptcy you qualify for.

Do not choose a filing date based only on the age of the tax debt. Call Kain + Henehan in St. Cloud at (612) 438-8006 or fill out the online form to discuss your options.