Lesson 64: Tax Debts in Bankruptcy

Understanding the nuances of tax debts in bankruptcy is crucial for effective filings. This lesson will demystify how tax liabilities are treated under different bankruptcy chapters and the criteria for discharging tax debts, all while keeping you entertained. So, buckle up!

Overview of Tax Debts in Bankruptcy

Tax debts can pose challenges during bankruptcy proceedings. Not all tax debts are dischargeable, and the ability to discharge them depends on several factors, including the type of tax, the age of the tax debt, and the specifics of the bankruptcy chapter under which the filing is made.

Key Provisions of the Bankruptcy Code

The Bankruptcy Code provides specific guidelines on how tax debts are handled in bankruptcy.



Section 507(a)(8) of the Bankruptcy Code outlines the priority of certain tax claims. It's like the VIP list of tax debts!

Types of Tax Debts

Tax debts can be classified into different categories, each with its own implications in bankruptcy:

  • Income Taxes: These may be dischargeable if certain criteria are met.
  • Payroll Taxes: Generally non-dischargeable.
  • Property Taxes: May be dischargeable based on their age and other factors.

Criteria for Discharging Income Tax Debts

Income tax debts can be discharged if the following criteria are met:

  • The tax return was due at least three years before the bankruptcy filing.
  • The tax return was filed at least two years before the bankruptcy filing.
  • The tax assessment is at least 240 days old.
  • No fraud or willful evasion was involved.

Priority of Tax Claims

Tax claims are prioritized under the Bankruptcy Code. Priority claims receive payment before non-priority claims.

Visual Representation of Priority Claims (because who doesn't love a good diagram?)

Handling Tax Liens

Tax liens are different from tax debts in that they attach to property. Bankruptcy does not necessarily remove tax liens, but it may limit the IRS's ability to collect from other assets.

Example of a Tax Lien Hierarchy (hierarchies are just fancy lists)

Practical Insights for Effective Filings

To successfully navigate tax debts in bankruptcy:

  • Identify the type and age of tax debts.
  • Understand the criteria for discharging tax debts.
  • Consider the impact of tax liens on property.
  • Consult with a bankruptcy attorney for tailored advice.

For more detailed information on other aspects of bankruptcy, refer to our comprehensive series:

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