Legal Question in Bankruptcy in Texas

Re: IRS Taxes Owed

Yes, you can include the total amount of your IRS tax debt in your bankruptcy. Taxes are treated in two different ways: as priority unsecured debt and general unsecured debt

Tax as Priority Debt: Tax debt is generally paid in full and non-dischargeable as a priority debt in a bankruptcy case. The taxes are considered a priority unsecured debt and you generally must repay them the full amount owed as of the date the bankruptcy case is filed. However, you will be allowed a chance to repay them over the course of 3 to 5 years in a chapter 13 bankruptcy case filing, which may provide a longer period of time than the IRS would normally allow.

Tax as Unsecured Debt: In order for a tax liability to qualify for discharge (in either a chapter 13 or chapter 7) all of the following criteria must be met:

1. Tax is for a year for which a tax return is due more than 3 years prior to the bankruptcy filing;

2. Tax returns were filed more than two years prior to the bankruptcy filing;

3. The tax liability was assessed more than 240 days prior to filing of the bankruptcy petition;

4. The liability is not due on Trust Fund Tax;

5. The taxpayer did not attempt to evade or defeat the tax, nor was the tax liability due to a fraudulent tax return;

6. The tax was not assessable at the time of the filing of the bankruptcy petition; and

7. The tax was unsecured (ie NOT a tax lien).

I hope you found this information helpful.