Can You Include IRS Debt in Bankruptcy?

Debt can be overwhelming, especially when it involves the IRS. When you owe the IRS money, it’s natural to feel anxious and confused about what options you have. Filing for bankruptcy is one option many people consider, but can you include IRS debt in bankruptcy? In this article, we’ll explore that question and provide you with everything you need to know about filing for bankruptcy with IRS debt.

Understanding Bankruptcy

Before we dive into whether you can include IRS debt in bankruptcy, it’s important to understand what bankruptcy is and how it works. Bankruptcy is a legal process that allows individuals and businesses to eliminate or repay their debts under the protection of the bankruptcy court. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is also known as liquidation bankruptcy because it involves selling your assets to pay off your debts. If your income is below the state median, you may be eligible for Chapter 7 bankruptcy. If your income is above the state median, you may have to pass a means test to qualify.

Chapter 13 bankruptcy is also known as reorganization bankruptcy because it involves creating a repayment plan to pay off your debts over three to five years. You’ll need a regular income to qualify for Chapter 13 bankruptcy.

IRS Debt and Bankruptcy

Now that we’ve covered the basics of bankruptcy, let’s answer the question: can you include IRS debt in bankruptcy? The short answer is yes, you can include IRS debt in both Chapter 7 and Chapter 13 bankruptcies. However, there are some restrictions and rules you need to be aware of.

Chapter 7 Bankruptcy and IRS Debt

In Chapter 7 bankruptcy, you can include IRS debt if the following conditions are met:

• The tax debt is at least three years old
• You filed a tax return for the debt at least two years before filing for bankruptcy
• The IRS assessed the debt at least 240 days before filing for bankruptcy
• You did not commit tax fraud or willful tax evasion

If all of these conditions are met, your IRS debt will be discharged along with your other unsecured debts. However, if you have a tax lien on your property, the lien will remain after bankruptcy.

Chapter 13 Bankruptcy and IRS Debt

In Chapter 13 bankruptcy, you can include IRS debt in your repayment plan. The amount you’ll have to pay depends on several factors, including the type of tax debt you have and the length of your repayment plan.

Priority tax debts, such as payroll taxes and trust fund taxes, must be paid in full under your repayment plan. Non-priority tax debts, such as income taxes, may be partially discharged if they meet certain conditions, such as being at least three years old.

Conclusion

In conclusion, you can include IRS debt in bankruptcy, but it’s important to understand the rules and restrictions for each type of bankruptcy. If you’re considering filing for bankruptcy with IRS debt, it’s a good idea to consult with a bankruptcy attorney to ensure you’re making the right decision for your financial situation. Remember, bankruptcy is a serious decision that can have long-lasting effects on your credit and financial future, so make sure you fully understand the implications before proceeding.

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