Most People Are Told This Is Impossible
If you've asked around about IRS debt, you've probably been told bankruptcy won't touch it.
That's wrong often enough to be worth a conversation. Older income tax liabilities can be discharged in bankruptcy if they meet a set of timing rules — the same discharge that wipes out credit cards, applied to the IRS.
The reason you've heard otherwise is structural. Most bankruptcy attorneys don't practice tax and refer it out. Most tax resolution firms don't file bankruptcy and won't suggest it. Each side sends you to the other, and the option that actually fits your situation never gets analyzed.
I'm a bankruptcy attorney and a tax attorney, admitted to the United States Tax Court. I look at both.
Which Taxes Can Be Discharged
Income taxes only. This is the first fork, and it disqualifies a lot of people before the timing rules matter at all.
Taxes that cannot be discharged in bankruptcy, regardless of age:
- Payroll and trust fund taxes — amounts withheld from employees' wages. If you ran a business and fell behind here, bankruptcy does not solve it
- Sales taxes and most excise taxes
- Tax debt arising from a fraudulent return or willful evasion
Income tax must then clear three timing tests:
Test 1: The tax return was due more than 3 years before you filed bankruptcy
Test 2: You filed the tax return more than 2 years before you filed bankruptcy
Test 3: The IRS assessed the tax more than 240 days before you filed bankruptcy
Each of those clocks can be paused by things you may have already done — a prior bankruptcy case, an Offer in Compromise, a Collection Due Process hearing. Time you thought was running may not have been.
Where People Get Tripped Up - the Traps
These are some trap that turn an apparently qualifying tax debt into one that survives.
A return the IRS filed for you doesn't count. If you never filed and the IRS prepared a Substitute for Return, that generally isn't treated as your return for discharge purposes. People who assume the clock started when the IRS assessed the tax often find it never started at all.
A tax lien survives the discharge. This is the one that surprises people most. Bankruptcy can eliminate your personal liability for a tax debt while a recorded federal tax lien continues to attach to property you owned when you filed. The IRS can no longer pursue you personally — but the lien is still there. Whether that matters depends entirely on what you own.
Recent taxes don't qualify. The rules are built around age. A liability from two years ago is not a candidate, however unaffordable it is.
Chapter 7 and Chapter 13 Treat Tax Debt Differently
Chapter 7 discharges qualifying older income tax outright, along with your other unsecured debt, in about three to four months. Non-qualifying tax debt survives and you'll still owe it.
Chapter 13 does something different and often more useful when you have a mix. Priority tax debt — the recent liabilities that can't be discharged — gets paid through your plan over three to five years, on a schedule the IRS is bound by rather than one it dictates. Older non-priority tax debt is treated like other unsecured debt and may be discharged at the end.
For someone carrying several years of tax liabilities of different ages, Chapter 13 can dispose of the old years and force a manageable structure onto the recent ones in a single case.
Bankruptcy or an Offer in Compromise?
Both can resolve IRS debt. They suit different situations, and almost nobody gets both explained properly.
An Offer in Compromise settles the liability for less than the full amount. It doesn't care how old the debt is, which makes it the tool for recent taxes that could never be discharged. But it requires you to qualify financially — the IRS calculates what it believes it could collect from you, and if that exceeds your offer, the answer is no. It also takes months, and it only addresses tax debt.
Bankruptcy can eliminate qualifying older income tax entirely, and it deals with everything else you owe at the same time. If your tax problem sits alongside credit cards, medical debt or a mortgage you're behind on, an Offer in Compromise resolves one piece of a larger problem.
Sometimes the answer is both — a bankruptcy that discharges the older years, followed by an Offer in Compromise on what remains. That sequencing is only visible to someone looking at both tools at once.
Bring Your Transcripts
The analysis on this page turns entirely on dates — when each return was due, when it was actually filed, when the tax was assessed, and whether anything paused those clocks. None of that can be guessed at.
If you have IRS notices or account transcripts, bring them. If you don't, I can tell you how to get them.
Consultations are free. I'll tell you which years might be dischargeable, which aren't, and whether bankruptcy, an Offer in Compromise, or some combination fits your situation.
Common questions
Can bankruptcy stop an IRS levy or wage garnishment? Yes. The automatic stay takes effect the moment a case is filed and applies to IRS collection like any other creditor.
What if I haven't filed returns for several years? That has to be dealt with first. Unfiled returns block most options, and the two-year clock generally can't start until a return is actually filed. It's fixable, but it's the first step rather than an afterthought.
Will the IRS object to my bankruptcy? Not usually in a straightforward consumer case. The IRS participates as a creditor and files a claim setting out what it says it's owed — which is worth checking rather than accepting, because claims are sometimes wrong.
I already have a payment plan. Should I file anyway? Possibly. An installment agreement means paying the full amount over time. If some of those years are dischargeable, you may be paying debt that bankruptcy would eliminate.
What about Arizona state tax debt? Similar principles apply to state income tax, with its own details. Bring what you have for both.
When you hire me, you get me
I'm Nathan J. Brelsford. I came to bankruptcy from accounting, and I'm admitted to the United States Tax Court.
Your calls, texts and emails come to me directly — not to a paralegal, not to an intake team. To the attorney who actually knows your case.
I can work that way because I keep my caseload small. This isn't a volume practice, and you won't see me advertised on a billboard or the back of a bus. I work with people who'd rather have their attorney's attention than a case number.
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