How Are Taxes Handled in a Bankruptcy?

Taxes are handled differently in bankruptcy depending on several factors.

Taxes are handled differently in bankruptcy depending on which type of bankruptcy is filed and the status of the tax claim. Some taxes must be paid, while others may not.

Priority Taxes Paid in Chapter 13

If taxes are priority claims, they must be paid in a Chapter 13 payment plan.

Secured Taxes Paid in Chapter 13

Taxes that are secured because a lien has been filed will also be paid in a Chapter 13 payment plan.

Priority Taxes in Chapter 7 Paid with Non-Exempt Property

In a Chapter 7 if the debtor has non-exempt property, the property will be liquidated to pay the debt.

Priority Taxes Still Due

If priority taxes are not paid in a Chapter 7, the debtor will still be required to pay them after the bankruptcy filing.

Taxes Discharged in Chapter 7 or 13

If the taxes due have been due for more than three years, they may no longer be considered a priority claim. If this is the case, they may be discharged in a Chapter 7 or 13.

References

• Internal Revenue Service: Publication 908--Bankruptcy Tax Guide