Tax Debt and Bankruptcy

People often think that they cannot eliminate their tax debts through bankruptcy, but this is a misconception.  Many income tax debts and even Ohio state taxes, can be discharged through Chapter 7 and Chapter 13 bankruptcies.


Bankruptcy, a legal way to have many debts forgiven, can put you on the road to financial recovery.  Chapter 7 provides for full discharge of allowable debts. Chapter 13 provides a payment plan to repay some debts, with the remainder of debts being discharged. Tax debts are treated the same way in both Chapter 7 and Chapter 13 petitions.

How do you know if bankruptcy is right for you?  The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that mounting debts can overwhelm even the most well-intentioned people.  We offer a free consultation to evaluate your financial situation and find a plan that’s best for you.

State of Ohio Chapter 7 Bankruptcy and Tax Debts

A Chapter 7 bankruptcy is considered to be a “fresh start” bankruptcy, as it enables you to discharge (eliminate) most or all consumer and/or business debts. Chapter 7 bankruptcy is over in a few months, so you can begin rebuilding credit quickly.

A Chapter 7 bankruptcy discharge of income taxes wipes out the personal obligation to pay the tax and prevents the taxing authority from going after your bank account or wages. IRS and local tax debts may be dischargeable through Chapter 7 bankruptcy if the tax debts meet the following requirements:

  • The taxes are for federal or state income taxes or taxes on gross receipts.
  • The return was due (including all valid extensions) at least three years before you filed for bankruptcy.
  • You filed the tax return at least two years before filing for bankruptcy. The taxing authority must have assessed the tax against you at least 240 days before you filed for bankruptcy. This limit may be extended if there was a compromise offer with you or if you had previously filed for bankruptcy.
  • You did not commit fraud or willful evasion of taxes or any intentional act of evading the tax laws.

Tax Debt and Ohio Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to repay some or all of your debt affordably over a three- to five-year period. This plan is best for those who don’t qualify for Chapter 7, who have a steady income, temporary financial problems and a desire to repay some of the debt in order to keep an asset such as a car or a house.

Tax debts that are determined to be priority may be paid back through the time period of the Chapter 13 repayment plan. Priority tax debts typically include tax liens, withholding taxes (FICA, Medicare, income taxes owed for employees’ pay, sales taxes), some employment taxes, certain tax penalties, and erroneous tax refunds.

Some state and federal income tax debts are treated as non-priority debts for Chapter 13.  To be discharged, they must meet the same requirements listed above for Chapter 7 bankruptcy:

Nondischargeable Tax Debts

You cannot get rid of most non-income-related tax debts through bankruptcy, including:

  • Recent income tax debts within 3 years.
  • Tax liens. Tax liens, also known as secured taxes, will remain on your property if they were recorded against your property before you file for bankruptcy. You have to pay the lien from any profits when you sell the property.
  • Recent property taxes payable within one year of your bankruptcy filing are non-dischargeable. Property taxes that were payable without penalty more than one year before your bankruptcy filing may be discharged, but liens against your property for the property tax remain.
  • Taxes that a third party is required to collect or withhold. This includes taxes such as FICA, Medicare, and income taxes that an employer must withhold, and sales taxes paid by customers. If you are a small business owner or are self-employed, you are responsible for the payment of withheld payroll taxes not remitted to the IRS, plus interest and penalties.
  • Certain employment taxes, excise taxes, and custom duties.
  • Non-punitive tax penalties on nondischargeable taxes — if the penalty occurred less than three years before filing for bankruptcy.
  • Erroneous tax refunds or credits relating to nondischargeable taxes.

Tax debts that arise from unfiled tax returns are not dischargeable unless the taxpayer files a tax return for the year in question.

If you file for Chapter 7, you will still be responsible for repaying these debts after your discharge. If you file for Chapter 13, these debts will have to be paid in full in your plan or the balance will remain at the end of your case.

Other Tax Issues

Before you can receive a Chapter 7 or Chapter 13 discharge you must prove that the four previous tax returns have been filed with the IRS no later than the date of the first creditors’ meeting in your bankruptcy case.  You must also provide a copy of your most recent tax return to the bankruptcy court and to creditors if so requested.

Contact Us and Get Help

Determining whether or not tax debts can be discharged is complex and full of uncertainty. The experienced and compassionate lawyers of Fesenmyer Cousino Weinzimmer are trained to identify these tax issues. We offer a free consultation, during which we can examine the facts of your individual situation before filing to help you make informed and educated decisions.

During your consultation at Fesenmyer Cousino Weinzimmer, we will evaluate your entire financial situation by looking at your income, your debts and your goals.  Make sure to disclose any tax liabilities and correspondence from the Internal Revenue Service with your attorney at the consultation. We will make sure you are aware of all your options and help you decide on the path to a brighter future that makes sense in your individual case.  We understand what you are going through and will walk you through the process.

Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today!  Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.

Other bankruptcy services we provide include Chapter 7, Chapter 13, Bankruptcy for Self-Employed, Divorce Bankruptcy, Tax Debt and student loan debt.

Know your rights! Know what you can keep, how to stop collections, the difference between filings statuses, alternatives to bankruptcy and terms you should know.

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