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The Basics: Tax Debt and Chapter 13 Bankruptcy

The old saying is that the only two things that are certain in life are death and taxes. But in bankruptcy court, taxes aren’t quite a certainty. Certain tax debts can discharged or reduced under Chapter 13 Bankruptcy, and even those tax debts that can’t be discharged can be rolled into a payment plan that is easier to handle than dealing with the IRS.

Priority Tax Debt

The biggest difference between Chapter 13 Bankruptcy and Chapter 7 Bankruptcy is that in Chapter 13 you can retain your assets, but will have to pay off a larger portion of your debt. But depending on what sort of taxes you owe, and how much tax debt you have, filing for Chapter 13 Bankruptcy can have several advantages over Chapter 7 Bankruptcy.

When you file for Chapter 13 Bankruptcy, all of your debts, including tax debts are classified as either priority debts or nonpriority debts. Priority debts generally cannot be discharged in bankruptcy unless you can show severe hardship. These debts include tax liens, property taxes incurred within one year of filing, and taxes that by law you are required to withhold as part of business operations, such as Medicare and income taxes.

One of the bigger advantages that Chapter 13 Bankruptcy has over Chapter 7 is that while priority debts are still not dischargeable, you can pay them back over the term of the repayment plan, usually without interest. The IRS will likely not offer you this type of deal on its own, but it will be bound to follow any ruling of a bankruptcy court.

Nonpriority Tax Debt

Nonpriority debt also cannot be fully discharged in Chapter 13 Bankruptcy, but it will be combined with unsecured debts, such as credit card bills, to be paid after secured debts and priority debts such as those discussed above. Depending on your circumstances and the length of the repayment plan, you may only pay off a small percentage of unsecured debts, including nonpriority tax debts.

Typically the only type of nonpriority tax debt that can be discharged as part of a repayment plan is income tax debt, and that debt must also meet several other requirements. First, the tax debt must be more than three years old, and it must have been disclosed in income tax filings at the time it was due. Second, you must have filed a tax return within two years of filing for bankruptcy. The tax debt also must have been assessed more than 240 days ago. Finally, a bankruptcy court will not include income taxes in nonpriority tax debt if there is evidence of fraud or willful tax evasion.

Filing Chapter 13 Bankruptcy

If you have a large amount of tax debt, then bankruptcy might be right for you. The Law Offices of Melanie Tavare of Hayward and Oakland can help relieve your tax burden through Chapter 13 bankruptcy. Contact the Law Offices of Melanie Tavare at 510-255-4636 or online.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.


"Melanie is the best she very responsive and helpful throughout the process everything was taken care of smoothly. If you are thinking of going through bankruptcy she is the best attorney for you. I will forever be grateful having the chance to work with her. She is very honest too."


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"What I liked about working with Melanie was how prompt and easy to work with she was. She made the process clear and understandable with as little stress as possible. I would work with her again and recommend her to others."