If you can't afford to pay your regular bills, there's a good chance that you can't afford to pay your tax debts either. If you've seen television commercials talking about wiping out tax debts through bankruptcy, they may have you thinking about your own taxes.

Can taxes be included in bankruptcy? Yes, to a point. While most tax debts cannot be discharged through bankruptcy, there are exceptions, and that's what you want to learn more about.

If you are thinking about filing a Chapter 13 bankruptcy, you'll have to repay your taxes in full through the Chapter 13 repayment plan. So, if you prefer to discharge your tax debts, the Chapter 7 is probably a more attractive option – assuming those debts qualify for a discharge.

When can I discharge tax debt?

A debtor can discharge, or "wipe out" their federal income taxes in a Chapter 7 bankruptcy under the following circumstances:

• The taxes in question are income taxes.
• You didn't commit fraud.
• You didn't willfully evade paying taxes.
• Your tax debt is at least 3 years old.
• You filed a tax return for the tax debt you wish to discharge.
• The tax debt is assessed by the IRS at least 240 days before you file bankruptcy.

Federal Tax Liens Are Not Dischargeable

Unfortunately, bankruptcy cannot wipe out any prior recorded tax liens. So, even if your taxes are eligible for a discharge through a Chapter 7, the lien will survive the bankruptcy.

While a Chapter 7 will eliminate your obligation to pay the tax debt, and it'll stop the IRS from going after your wages and bank accounts, if the IRS recorded the lien against your property before you filed bankruptcy, the lien will remain. In effect, you can't sell your property until you pay the tax lien.

To learn more about taxes and bankruptcy, contact a bankruptcy attorney in our directory!