Eliminating Tax Debts in Bankruptcy

Nolo, January, 2005

You may hear radio commercials offering the hope of eliminating tax debts in bankruptcy. But it's not as simple as it sounds. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine whether Chapter 7 bankruptcy or Chapter 13 bankruptcy is a better choice for you.

When You Can Discharge a Tax Debt

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:

The taxes are income taxes. Taxes other than income, such as payroll taxes, a Trust Fund Recovery Penalty, or fraud penalties, can never be eliminated in bankruptcy. You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade...

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