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How will bankruptcy impact my taxes?

If you file for bankruptcy and owe taxes to the IRS, you may wonder what will happen with that debt. You may learn that you cannot discharge all debts through bankruptcy and question if that includes taxes.

The IRS explains how the court handles your taxes will depend on the type of bankruptcy you file and your specific circumstances.

Chapter 7

If you file Chapter 7, you must make sure that you have filed your taxes for the last four years. The court can discharge outstanding tax debts that are older than three years. An exception is if you filed those taxes late, then you will still owe them. Any recent tax debt will not discharge in this case. You must also file taxes while in bankruptcy and pay any amount due. You cannot discharge the tax debt you incur after you file.

Chapter 13

Again, you need to be sure you have filed all your taxes for the past four years. Because this is a repayment plan, you will pay on tax debt if it is part of your plan. Any debt remaining when you complete the plan will discharge if they are older than three years and filed on time.

Keep in mind that you remain liable for the tax debt you incur after filing for bankruptcy. It is up to you to file your taxes correctly and on time while in bankruptcy. Your trustee may also give you instructions, such as not spending refunds and reporting your tax return to the court. You must adhere to any directions the trustee gives you.


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