Can Taxes Be Wiped Out in Bankruptcy?
Many people considering filing bankruptcy have late or back taxes and want to know if these taxes can be discharged in the bankruptcy. The most important thing regarding taxes and bankruptcy is that you must have filed all of your taxes before you file your bankruptcy. Even if back tax payments can be discharged, they will not if you have not yet filed those taxes. There are certain rules as to which taxes can and cannot be wiped out in the bankruptcy.
First, with a Chapter 7 bankruptcy, where most unsecured debts are discharged, taxes that have been filed but not paid can be discharged if it has been at least three years since the tax return was due. It is key that all of your taxes for the last four years have at least been filed, even if you have not paid the government for back taxes.
Any unpaid taxes for the past 3 years cannot be discharged in a Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy you cannot discharge back taxes. A Chapter 13 is a repayment plan for all of your debts including taxes. Any taxes that you owe to the government will be listed as a creditor in your Chapter 13 plan and you will pay back those taxes over the time that you are in the Chapter 13 bankruptcy. Once again you still must have filed all of your taxes for the last four years. If you complete your bankruptcy and continue to pay your current taxes, you should be caught up with all back taxes when you complete your plan.
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