I get questions almost daily about whether taxes owed can be included in a bankruptcy. Now that the filing date for 2013 taxes has passed, it seems a good time to review the basic considerations.

Chapter 7

In a Chapter 7, you can include taxes in bankruptcy and receive a discharge for those taxes, if the taxes owed are more than three years old. The date you use is the filing date for the taxes being considered. For example, taxes for tax year 2010 were due April 15, 2011. As we are currently more than three years beyond that date, those taxes can be discharged in a Chapter 7. If you were granted an extension to file, then you use the extension date as the original due date. Note that the taxes must meet the date requirement, and the tax return for that particular year must have been filed at least two years prior to filing the bankruptcy.

If you owe taxes less than three years old, it will not prevent you from filing a Chapter 7; however, you will still owe those taxes post-discharge.

Chapter 13

Chapter 13 works much the same way with one exception: taxes which are not old enough to be discharged are treated as priority debt and must be paid in their entirety over the course of the Chapter 13 plan. For most clients, paying back taxes in bankruptcy is a great way to square your account with the IRS or state of North Carolina, while also achieving a discharge of credit card, medical, and other debts.

If you have questions please call me at 704.749.7747. If you’re considering filing bankruptcy I’m happy to assist you in understanding how it works.