Claiming Chapter 7 Bankruptcy May Wipe Out IRS Debts

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney

So you have a bill from the IRS (or the State) for taxes owed. It’s only one of many bills that you have and you know there is no way that you can pay off all these debts. So you have made the decision to file a Chapter 7 bankruptcy. But will this do anything about the tax debt?

I’ll give you the really annoying lawyer answer: it depends. My husband hates it when he asks me a legal question and my response is “it depends”, he wants a yes or no answer. However, many issues in the law and especially bankruptcy or not that clear. There are many factors that will go into whether you can discharge or wipe out tax debt in a Chapter 7 bankruptcy. Here are some of the things that must be considered:

1. What tax years do you owe the taxes for?

2. Did you file the tax returns for that year?

3. Did you file the tax returns on time?

4. If you did not file the tax returns on time, when did you file the returns?

5. Has the IRS recorded a tax lien?

6. Has the IRS issued an estimated tax return?

7. Have you entered in

to an offer and compromise on these taxes?

As you can see, the question of whether you can discharge tax debt in a Chapter 7 bankruptcy is very complicated. If you owe taxes to the IRS or the state, you need to talk to an e

xperienced bankruptcy attorney about the taxes that are owed. It will help if you have the answers to at least the first four questions above. This will allow the attorney to determine if the taxes can be discharged by claiming Chapter 7 bankruptcy. 

A practical tip: if you have 

not filed tax returns for all the years that you are required to, do that right away. Many people don’t file a return because they don’t have the money to pay the taxes. Not filing a tax return is the worst thing you can do. Get them filed. If you need assistance with that, call us and we can refer you to an excellent tax preparer.
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