Tax Debt & Bankruptcy Attorneys
Bankruptcy can discharge certain federal and state tax debts, but only when specific statutory requirements are met. Filing the wrong chapter or filing at the wrong time wastes the filing fee and leaves the tax debt fully intact. Valley Tax Law analyzes the dischargeability question before any petition is filed.
Income tax debt can be discharged in Chapter 7 or paid through Chapter 13 only when it meets the three-year, two-year, and 240-day rules and is not connected to fraud. Payroll trust fund taxes, sales tax, and recent income tax liabilities are non-dischargeable regardless of chapter.
When Tax Debt Is Dischargeable
Three-year rule: the tax return must have been due (including extensions) more than three years before the bankruptcy petition is filed.
Two-year rule: the actual return must have been filed more than two years before the petition. Substitutes for Return filed by the IRS do not count.
240-day rule: the tax must have been assessed more than 240 days before the petition. Recent audit adjustments restart this clock.
Fraud and evasion: tax debt connected to a fraudulent return or willful evasion is never dischargeable.
Chapter 7 Versus Chapter 13
Chapter 7 provides a clean discharge of qualifying tax debt within three to four months, assuming the taxpayer passes the means test and is not engaged in fraudulent conduct.
Chapter 13 restructures debts into a three-to-five-year repayment plan. Non-dischargeable priority tax debt is paid in full through the plan; dischargeable tax debt is paid on the same pennies-on-the-dollar basis as general unsecured creditors. For taxpayers with significant non-dischargeable tax debt, Chapter 13 can be the most affordable path forward.
What Bankruptcy Does Not Solve
Federal tax liens survive bankruptcy as in rem claims against assets owned at filing. Even discharged tax debt keeps its lien against pre-petition equity.
Trust fund recovery penalties, payroll trust fund taxes, sales tax obligations, and tax penalties on recent or non-dischargeable tax debt are not discharged.
Non-bankruptcy alternatives, including Offer in Compromise, installment agreement, and Currently Not Collectible status, are often a better outcome than bankruptcy for taxpayers with primarily non-dischargeable tax debt.
Serving California Communities
Valley Tax Law represents clients throughout the Central Valley and Central Coast. Schedule a consultation at any of our offices, or by phone.
Why people call us first
Get a free tax debt action plan. Built by experts. Yours to keep.
Most tax-relief companies use the consultation as a sales pitch. We use it to give you something concrete: a clear, prioritized plan for your specific case, ready to execute with or without our involvement.
- You speak with experts, not salespeople. Our resolution team has worked thousands of IRS and state tax cases across the United States. They know which questions matter.
- You leave with a written action plan. Not a vague pitch. Specific steps tailored to your facts: which IRS program fits, what to file, what deadlines apply, what to expect.
- The plan is yours, no strings attached. Use it on your own. Take it to another firm. Hire us to execute it. There is no obligation, ever.
- If we cannot help, we tell you. Not every case is right for our firm. When that happens, we point you toward the right resource instead of taking your money.
Get your free tax debt action plan. Yours to keep, with or without us.
15 minutes with our tax debt resolution team. A concrete plan tailored to your specific case. No obligation, no pressure, no sales reps.