Back Taxes and Bankruptcy: What You Need to Know Before You File

When people think of bankruptcy, they often assume taxes aren’t included. And yes—it’s true that not all tax debts can be discharged.
But the truth is more nuanced.
Depending on the type of taxes you owe and how old they are, bankruptcy could eliminate some of your IRS debt—or at least give you space to breathe.

Let’s clear up the confusion.

Can You Discharge IRS Tax Debt in Bankruptcy?

Yes, under very specific conditions.

For income taxes, these must generally be true:

• The tax return was due at least 3 years ago.

• You filed the return at least 2 years ago.

• The IRS assessed the tax at least 240 days ago.

• The tax is not due to fraud or evasion.

If all of these conditions are met, the tax debt may be dischargeable in a Chapter 7 or included in a Chapter 13 plan.

What You Can’t Discharge

• Payroll taxes (from business owners)

• Penalties for fraud

• Recent income taxes

• Unfiled tax returns

Also: if you’ve never filed the tax return, bankruptcy won’t help.

What Happens to Your Tax Refunds?

• In Chapter 7, your refund may be seized by the trustee if it’s considered part of the estate.

• In Chapter 13, refunds can be absorbed into your repayment plan unless exempted.

Related: Post-Bankruptcy Credit Report – How to Rebuild Wisely

Strategic Timing Is Key

If you’re expecting a large tax refund, talk to your attorney before filing. In some cases, adjusting your withholdings or spending your refund on necessary living expenses (rent, food, car repair) before filing is legally acceptable.

Don’t Guess—Get Tax-Savvy Bankruptcy Help

The IRS is complex and so is bankruptcy. But with good strategy, we’ve helped clients eliminate thousands in tax debt and protect their future refunds.
Let’s talk. Book your free consultation to understand how your taxes and bankruptcy intersect, so you can move forward with confidence.

Ready to take control of your finances?

Don’t navigate the intersection of IRS debt and bankruptcy alone. At Pagán López Law, we’ll walk you through your options with clarity, empathy, and legal precision.

📍 Our Office Information:

Pagán López Law
28‑07 Jackson Ave, Tower 3, 5th Floor
Long Island City, NY 11101
📞 Phone: (646) 216‑8881
📱 WhatsApp: (347) 434‑3041
📧 Email: info@paganlopezlaw.com
🌐 Website: www.paganlopezlaw.com

👉 Book your free consultation today and find out how we can help eliminate tax burdens and rebuild your financial future.