Discharging income taxes through bankruptcy


Bankruptcy can be used to discharge unpaid income taxes if all requirements are met. Listen as Attorneys Tom Olsen and Jim Monroe explain!


Attorney Jim Monroe: Income taxes are sometimes dischargeable in bankruptcy. If you can't discharge the taxes you can certainly pay them off over a longer period of time without penalty and at a low-interest rate. Taxes are an area that a lot of people don't even consider when they think of bankruptcy.

Attorney Tom Olsen: I had a client last week and her deceased husband was a tax protester. As you might imagine it caught up with him eventually. Can you be a tax protester and still file tax returns? Can you say, "I owe you money but I'm not going to pay you?"

Attorney Jim Monroe: Well, that type of individual, that's one of the prongs that might defeat the possibility of getting a discharge. There's one thing to feel like you really don't owe the taxes and to contest the taxes. There's another when you willfully evade tax collection and that is against the law and that is non-dischargeable.

Attorney Tom Olsen: Just some examples of the amount of tax bills that you've gotten people out of paying with the IRS?

Attorney Jim Monroe: Well, literally millions of dollars over the years but-- well into the millions of dollars. If they meet the criteria and something has happened like they've lost all of their property let's say during the Great Recession and they're left hanging with a very, very large income tax bill and they are a reasonably honest individual that's just fallen upon bad times, as long as they meet the criteria under the bankruptcy code, and I won't go through all of the criteria, but they have to be at least three years old in order for income taxes to be discharged.

Attorney Tom Olsen: And you're discharging through a Chapter Seven bankruptcy?

Attorney Jim Monroe: You can discharge them through Chapter Seven, 13, 11, and probably 12.