Tax Debt

Discharging Taxes Through Chapter 7 Bankruptcy

When Can You Discharge a Tax Debt

Under current bankruptcy law. you can discharge (eliminate) federal income tax debts through Chapter 7 if ALL of the following are true:

The taxes you are discharging are income taxes. Taxes other than income. such as payroll taxes or fraud penalties, can never be discharged in bankruptcy.

The income lax debt is at least three years old. in order to qualify for a discharge of your income tax debt, the taxes due must be at least three yours old.

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The Effect of Federal Tax Liens

If your taxes qualify for discharge in a Chapter 7 bankruptcy case. your victory may be bittersweet. This is because prior recorded tax liens are not affected by your filing. A Chapter 7 bankruptcy will wipe out your personal obligation to pay the debt, and prevent the IRS from going after your bank account or wages, but any lien recorded before you file for bankruptcy remains. In effect. this means you'll have to pay off the lien in order to sell the property.

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