It is quite often that I have a client call me up and ask me, “can I file bankruptcy on taxes?" Many of my clients are truly surprised to learn about the often beneficial treatment of taxes in both Chapter 7 and Chapter 13 proceedings. Often you can wipe out your tax liability and zero out your past due account. In short, depending on how old they are and how long it has been since they were filed or incurred, you frequently can file bankruptcy on taxes.
Can I File Bankruptcy on My Taxes?
Over 200 years ago, Benjamin Franklin, one of our Founding Fathers, uttered those famous words, “in this world nothing can be said to be certain, except death and taxes.” True, at some point for each of us, hopefully after a long and healthy life, death is certain. But taxes, unlike death, are not certain.
If you just learning about treatment of taxes in bankruptcy, you'll be happy to learn that, under appropriate circumstances, you can file bankruptcy on taxes. Income taxes, especially if they are over 3 years old, frequently can be eliminated with the guidance of an experienced lawyer. If your attorney determines that you pass the Income Tax Discharge Rule, you can file on your tax liability and receive a discharge of your tax debt.
But be careful. Even if you pass the Income Tax Discharge Rule, there may be facts triggering an exception to the rule thus preventing you from discharging your tax liability. For example, if the IRS has not yet made an assessment the IRS could make an assessment after you file your case, posing a potential obstacle to discharged your taxes. Also, in cases of evasion, the IRS could make a case for objecting to dischargeability.
Other types of taxes can also be discharged. Property taxes, employment taxes, and other types of tax debt can be discharged if certain tests are met. Usually, the older the taxes, the better your chances of being able to eliminate the tax liability. If you have property taxes, employment taxes, and other types of tax debt, be sure to discuss with your lawyer from the outset of the representation how the tax debt will be treated in your filing.
How can you be sure your tax liability will be wiped out in your Chapter 7 case or Chapter 13 repayment proceeding? It is important to discuss your situation with an expert attorney and to do so as early as possible in case there are any planning issues that need to be addressed before you file. Contrary to what many people believe, in many cases, the only thing certain about taxes is that in many cases they are certain to be eliminated with a carefully planned bankruptcy filing!