Contrary to what many people think, income taxes can be discharged in bankruptcy. They must meet certain rules depending on whether a Chapter 7 or a Chapter 13 Bankruptcy is filed.

In both cases they must meet a 3-year rule, which basically means that it must be more than three years from the due date of the return, including extensions, for the year in which the tax liability is being considered for discharge. For example, if you filed an extension to file your 1999 tax return until August 15th of 2000, you would have been eligible to discharge debt from the 1999 year as of August 15th of 2003 under the 3-year rule. There are other rules that apply, so please don't consider our example as complete; it merely shows how the 3-year rule works.

Taxes must be assessed for at least 240 days prior to filing the bankruptcy petition. However, in the case of filing a Chapter 13 bankruptcy, there is a loophole which allows non-filers to petition first and then file in order to avoid having to meet the 240-day assessment rule.

If you are considering bankruptcy, we would be happy to refer you to a competent attorney who can either assist you or point you in the right direction. Please CONTACT US now.