Tax Debt and Bankruptcy
Most people are told tax debt can never be discharged. That is not accurate. Older income tax debt can be eliminated in bankruptcy when specific timing rules are met, and debt that cannot be discharged can often be repaid on manageable terms through a Chapter 13 plan.
Discharge Older Tax Debt
Stop IRS & FTB Collection
Repay Priority Taxes
Free Case Evaluation
HOW BANKRUPTCY TREATS TAX DEBT
Whether tax debt can be discharged depends on the type of tax and its age. Personal income tax is the category most often eligible; payroll and trust fund taxes generally are not.
Eligibility turns on a set of timing rules — how long ago the return was due, when it was actually filed, and when the tax was assessed. Missing one of them by weeks changes the outcome, so dates need checking against IRS and FTB records.
Tax debt that is too recent to discharge is treated as priority debt. In a Chapter 13 case it can be repaid in full through the plan, without further penalties accruing and without collection pressure.
Filing stops IRS and Franchise Tax Board collection through the automatic stay. A recorded tax lien, however, can survive the discharge and attach to property, which is why liens are reviewed separately.
Income Tax That Can Be Discharged
Personal income tax may qualify where the return was due at least three years ago, was actually filed at least two years ago, and the tax was assessed at least 240 days ago.
Tax Debt That Cannot
Payroll and trust fund taxes, most penalties tied to non-dischargeable tax, fraudulent returns and unfiled years generally cannot be discharged.
Chapter 13 for Recent Taxes
Priority tax debt is repaid in full through a three or five year plan, spreading the balance into affordable monthly payments.
Tax Liens
A lien recorded before filing can survive discharge and stay attached to property, even where the personal liability is wiped out. Liens are assessed case by case.
THE TAX DEBT REVIEW PROCESS
1
Consultation
Review what is owed to the IRS and the Franchise Tax Board, and for which tax years.
2
TIMING ANALYSIS
Pull account transcripts and test each year against the discharge timing rules and any events that suspend them.
3
CHAPTER SELECTION
Decide whether Chapter 7 discharge, a Chapter 13 plan, or a combination best fits the mix of dischargeable and priority tax.
4
FILING & RESOLUTION
File the case, stop collection under the automatic stay, and discharge or repay each year of tax debt.
Why Clients Choose Our Firm
- Free initial consultation
- Year-by-year analysis of tax debt rather than blanket answers
- Experience with IRS and Franchise Tax Board collection matters
- Straight guidance on tax liens and what survives a discharge
- Support through the full case, not just the filing
TAX DEBT AND BANKRUPTCY FAQ
Meet Your Debt Relief Attorney
Melanie Travare
Principal Attorney & Founder
Melanie Tavare reviews tax debt year by year to establish what bankruptcy can discharge and what has to be repaid. She handles both IRS and Franchise Tax Board matters for clients across Oakland, Hayward and Alameda County.
LEGAL AND FINANCIAL RESOURCES
IRS — Declaring Bankruptcy
https://www.irs.gov/businesses/small-businesses-self-employed/declaring-bankruptcy
California Franchise Tax Board
https://www.ftb.ca.gov/
U.S. Bankruptcy Court
https://www.uscourts.gov/services-forms/bankruptcy
Taxpayer Advocate Service
https://www.taxpayeradvocate.irs.gov/