Can I Get Rid of Income Taxes Through Bankruptcy? The answer to that question depends on which chapter of bankruptcy you are eligible for and whether the taxes meet the discharge criteria.
In general, your income taxes must meet the following criteria to be discharged:
You also must not have intentionally tried to evade taxes or filed fraudulent tax returns.
Income Taxes in Chapter 7 Bankruptcy
If you are eligible for Chapter 7 Bankruptcy and you have income taxes which qualify for discharge, then those liabilities will be discharged when the Discharge Order comes through. There is no report which shows which taxes are discharged and which are not discharged … if the taxes are dischargeable then they will be discharged and if the taxes are not dischargeable then they will not be discharged. That’s not a very definite answer, but it’s the best answer anyone can give you because that is just how it works in bankruptcy. The taxing authority will determine which taxes are dischargeable and which are not based on the discharge criteria and the information they have on file regarding those taxes.
If you have non-dischargeable taxes in a Chapter 7 Bankruptcy you will still owe those taxes after the Discharge Order comes through and will want to work out a payment plan with the taxing authority involved.
Income Taxes in a Chapter 13 Bankruptcy
If you have non-dischargeable taxes in a Chapter 13 Bankruptcy, you have to propose a payment plan which will completely pay off those taxes over the life of the plan.
If you have dischargeable taxes in a Chapter 13 Bankruptcy, you’ll end up paying somewhere between 0% to 100% of those taxes depending on if you have any non-exempt equity in assets (e.g., house, vehicles, etc.) and/or have any disposable income. If any dischargeable taxes are not paid in full through your plan then those will be discharged at the end of your plan.
By Errin Stowell, W M Law Attorney