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The Internal Revenue Service (IRS) does not allow discharge of taxes if you are bankrupt. Bankruptcy can be filed using a petition for Chapter 7 or Chapter 13. Chapter 7 requires you to sell your assets to pay your debt. Chapter 13 requires that your debt be renegotiated and paid in monthly installments for a period of five years. You will not have to sell your assets if you file this type petition with the court. Neither of the petitions allow for discharge federal tax debt. Some tax debt is allowed, but not that owed the federal government.

To claim any debt including taxes you can bankrupt you must list when you file the bankruptcy petition with the court. You are required to list all debt, including any tax debt that is owed. The law states that a debtor must list all the liabilities owed or he may face charges of fraud. IRS tax debt is listed on the form Bankruptcy Schedule E ‘Creditors Holding Unsecured Priority Claims’. Tax debt is unsecured and is also considered priority which means that the IRS will receive first payment options of all creditors listed.

You cannot list taxes you can bankrupt if you already have an IRS tax lien against your assets. This debt cannot be discharged because liens are not discharged in bankruptcy proceedings. In chapter 7 filing you can pay the lien or you can sell the property to satisfy the IRS lien. If you file chapter 13 you can include the payment on the lien in the monthly payment schedule.

If you plan on claiming the IRS debt on your bankruptcy you must have filed a tax return for the year that you are asking the court to discharge. The court requires that you have filed returns for the prior two years before the request for discharge. The claim cannot be fraudulent and the IRS must have made the tax assessment at minimum of 240 days prior to the filing of the petition for bankruptcy. You can only petition for the discharge of taxes that are income based and you cannot ask for discharge of payroll taxes. The debt must be older than three years before the court will consider discharge and the IRS will concur with the court order for discharge. The time starts on the date that you filed the return in which money was owed. If you are bankrupt, taxes you can list on the petition for discharge must be assessed by the IRS, must be at least three years overdue, and must be for personal income.