Chapter 7

• You can typically discharge tax debts in Chapter 7 bankruptcy if the debt is for income taxes. For federal taxes, the Internal Revenue Service must have assessed the taxes at least 240 days before filing for bankruptcy. The original due date of the taxes must have been at least three years before you filed for bankruptcy, and you must have filed a return for the taxes at least two years before your bankruptcy filing date. You can't include tax debts that resulted from fraud or tax evasion.
  
  

Chapter 13

• You can't discharge income tax debts in Chapter 13 bankruptcy. Tax debts qualify as priority debts in Chapter 13 bankruptcy cases, so you must pay them in full regardless of your circumstances. You can, however, include them in your payment plan. Once the debts become part of your payment plan, the IRS can't continue to make attempts at collection.
  
  

Tax Liens

• Though Chapter 7 bankruptcy can eliminate your personal liability for income tax debt, it can't eliminate any tax liens that the IRS placed on your property prior to the bankruptcy. During the bankruptcy process, the IRS can't enforce its lien because of the automatic stay. However, once the case is closed, the IRS can foreclose on your property if you haven't paid your debt.
  
  

Considerations

• If you make too much money each month, you may not be able to file Chapter 7 bankruptcy. Though Chapter 13 bankruptcy won't discharge your tax debts without repayment, you can still benefit from including the debts in your payment plan because the bankruptcy will stop interest and penalties from accruing. You will have to pay the tax debt in full, but you may be able to discharge the unpaid interest and penalties at the end of the process.