Bankruptcy & The IRS
Some taxes and penalties can be discharged (wiped out) by bankruptcy. Those taxes that cannot be discharged can be paid with interest in Chapter 13.
The same provisions of the “automatic stay” that protect debtors from their creditors also apply to the IRS and State Department of Revenue. This means that wage garnishments and levies put in place by taxing authorities are stopped by the filing of bankruptcy.
Whether taxes can be discharged depends on: the kind of tax, what tax year it is for, whether a return was filed, and the type of bankruptcy filed.
The typical rule of thumb in bankruptcy is that taxes can be discharged, as long as the taxes were first due more than three years before the bankruptcy is filed, and the return was filed on-time, and the last two tax returns have been filed on time.
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