Can Federal Taxes Be Included in Bankruptcy? Chapter 7 vs 13

Federal taxes can be included in a bankruptcy case, but whether they actually get wiped out is a different question. Older federal income tax debt can be discharged if it clears three strict timing tests and the return was filed honestly and on time. Recent income taxes, payroll trust fund taxes, and anything connected to fraud, evasion, or unfiled returns stay with you no matter which chapter you file.

When Federal Income Tax Qualifies for Discharge

Income tax debt has to clear three separate timing hurdles before a bankruptcy court will discharge it. All three must be satisfied at the same time, and each runs from a different date. Miss one and the debt survives.

The Three-Year Rule

The return for the tax year in question must have been due at least three years before you file your bankruptcy petition. Extensions push that date out. If an extension moved your 2022 return due date to October 15, 2023, the earliest you could file bankruptcy and discharge that year’s taxes would be October 15, 2026.¹

The Two-Year Filing Rule

You must have actually filed the return at least two years before your bankruptcy petition date. This matters most for late filers. If you owed taxes for 2019 but did not file that return until March 2025, the two-year clock starts in March 2025, so you would have to wait until at least March 2027 to discharge that debt.²

A substitute return the IRS prepared for you because you never filed does not count. The bankruptcy code explicitly excludes IRS-prepared substitute returns from the definition of a “return” for this purpose, so you would need to file your own to start the two-year clock.²

The 240-Day Assessment Rule

The IRS must have formally assessed the tax at least 240 days before you file. Assessment usually happens shortly after you file a return or after the IRS finishes an audit. Two things pause the clock: a pending offer in compromise (the pause lasts for the time it is under review plus 30 days) and a prior bankruptcy case with an active stay (the pause lasts for the stay plus 90 days).¹

Federal Taxes That Can Never Be Discharged

Some tax debts are permanently excluded no matter how old they are or which chapter you file.

Unfiled returns. If you never filed a return for a given year, that year’s tax cannot be discharged. There is no workaround.²
Fraudulent returns and tax evasion. A fraudulent return or a willful attempt to evade or defeat a tax makes that debt non-dischargeable forever. This includes intentionally underreporting income, claiming fabricated deductions, and hiding assets from the IRS.²
Trust fund taxes. Payroll taxes withheld from employees’ wages, including Social Security and Medicare contributions, are treated as money held in trust for the government and cannot be discharged.¹

Penalties and interest tied to non-dischargeable tax typically follow the underlying debt and survive as well.

You may see references to a Chapter 13 “super discharge” that could eliminate taxes Chapter 7 cannot. That largely ended in 2005. Congress amended the code so that taxes tied to fraud, evasion, or unfiled and late-filed returns are now non-dischargeable in Chapter 13 too.³

How Chapter 7 and Chapter 13 Treat Tax Debt Differently

The chapter you choose decides whether qualifying tax debt gets erased outright or folded into a repayment plan, and it changes what happens to the taxes that do not qualify.

Chapter 7

Chapter 7 is the cleaner path for income tax that meets every dischargeability rule. If the debt clears the three-year, two-year, and 240-day tests and does not involve fraud or an unfiled return, it is wiped out with your other dischargeable debts, usually within a few months.

Tax debt that fails any test survives in full. The IRS can resume collection once your case closes, and Chapter 7 does nothing to restructure what remains.

Chapter 13

Chapter 13 puts you into a three-to-five-year repayment plan.⁴ Priority tax debts, including recent income taxes and trust fund taxes, have to be paid in full through the plan.⁵ The upside is that you spread those payments over several years instead of facing immediate IRS enforcement.

Tax debt that does meet all the discharge requirements gets treated like other unsecured debt. It sits alongside credit card balances and medical bills, and whatever portion remains unpaid at the end of the plan is discharged.

One obligation surprises people: you have to stay current on all new tax filings and payments that come due during the Chapter 13 case. Falling behind on post-petition taxes can get your case dismissed.⁴

Tax Liens Can Survive the Discharge

A bankruptcy discharge eliminates your personal obligation to pay the tax, but it does not automatically remove a federal tax lien the IRS already recorded against your property. A lien attached to an asset you owned on the day you filed stays on that specific property.

Say the IRS recorded a lien against your house before you filed Chapter 7 and the underlying tax was discharged. You no longer owe the money personally. The lien, though, stays on the house. If you sell, the IRS gets paid from the proceeds. The lien does not follow you to property you acquire after the bankruptcy filing.

A pre-petition lien continues until the underlying liability is satisfied or the collection period expires.⁶ Chapter 13 can help on timing: because the automatic stay blocks the IRS from recording new liens during the case, completing a plan that discharges the underlying tax can keep a lien from ever attaching.⁷

If the Tax Debt Survives, What Then

When federal tax debt is not discharged, the IRS resumes collection after the automatic stay ends. Several programs exist to manage what remains.

Installment Agreements

The IRS offers long-term payment plans. If you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns, you can apply online.⁸ Setup fees range from $22 for an online direct debit agreement to $178 for a non-direct-debit plan set up by phone or mail. Taxpayers earning below 250% of the federal poverty level can get those fees waived or reimbursed.⁹

Offer in Compromise

An offer in compromise lets you settle for less than you owe. The IRS evaluates your income, expenses, asset equity, and ability to pay before accepting.¹⁰ A lump-sum offer requires a nonrefundable payment of 20% of the proposed amount with the application; a periodic payment offer requires the first proposed installment. Low-income taxpayers may qualify for an exception to those upfront payments.¹¹

Currently Not Collectible Status

If you genuinely cannot afford any payments, the IRS may place your account in “currently not collectible” status, temporarily halting collection. You will have to document income, expenses, and assets. Penalties and interest keep accruing, future refunds get applied to the balance, and if you owe more than $10,000 the IRS will generally file a tax lien as a condition.¹²

This status is not forgiveness. The IRS reviews your account periodically to see whether your finances have improved. The 10-year collection clock keeps running during the status, though, so some debts expire on their own if the IRS never resumes active collection before the statute runs out.¹³

1
Office of the Law Revision Counsel. 11 US Code 507 – Priorities
2
Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
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Office of the Law Revision Counsel. 11 US Code 1328 – Discharge
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United States Courts. Chapter 13 Bankruptcy Basics
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Office of the Law Revision Counsel. 11 US Code 1322 – Contents of Plan
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Office of the Law Revision Counsel. 26 US Code 6322 – Period of Lien
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Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay
8
Internal Revenue Service. Simple Payment Plans for Individuals and Businesses
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Internal Revenue Service. Payment Plans; Installment Agreements
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Internal Revenue Service. Offer in Compromise
11
Internal Revenue Service. Topic No. 204, Offers in Compromise
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Internal Revenue Service. Temporarily Delay the Collection Process
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Office of the Law Revision Counsel. 26 US Code 6502 – Collection After Assessment