Can Federal Taxes Be Included in Bankruptcy? Timing Tests and Liens

Federal taxes can be included in bankruptcy, but only a narrow slice of them actually go away. Federal income tax debt is dischargeable when the return was due at least three years ago, was actually filed at least two years ago, and was assessed by the IRS at least 240 days before you file your petition. Taxes connected to fraud, evasion, unfiled returns, or payroll withholding are never wiped out, no matter how old they are. Everything else about how bankruptcy handles tax debt flows from those two ideas.

The Three Timing Tests for Income Tax Discharge

All three tests have to be satisfied at the same time. Each runs from a different starting date, and missing any one of them by a day keeps the debt alive.

Three Years From the Return’s Due Date

The return for the tax year in question must have been due at least three years before your bankruptcy petition. Filing extensions count toward that due date. If an extension moved your 2022 return’s due date to October 15, 2023, you could not discharge that year’s tax until October 15, 2026 at the earliest.¹

Two Years From When You Filed

You must have actually filed the return at least two years before your petition date. This trips up late filers. If you owed for 2019 but did not file the return until March 2025, the two-year clock starts in March 2025, pushing your earliest discharge date to March 2027.²

A substitute return the IRS prepared for you does not count. The bankruptcy code explicitly excludes IRS-prepared substitutes from the definition of a return for this rule, so the two-year clock never starts until you file your own.²

240 Days From Assessment

The IRS must have assessed the tax at least 240 days before you file. Assessment usually happens soon after you file the return or after an audit closes. Two things pause that 240-day count: a pending offer in compromise pauses it for the time the offer was under consideration plus 30 days, and a prior bankruptcy with an active stay pauses it for the length of that stay plus 90 days.¹

Federal Tax Debts That Bankruptcy Never Touches

Even when the timing works, some categories are permanently off the table in any chapter.

Taxes for a year you never filed a return. There is no workaround; an unfiled year is an absolute bar to discharge.²
Taxes tied to a fraudulent return or a willful attempt to evade tax. Underreporting income on purpose, inventing deductions, and hiding assets all fall here.²
Trust fund taxes. Payroll amounts you withheld from employees, including their Social Security and Medicare contributions, are treated as money held for the government, not personal debt.¹

Penalties and interest on a non-dischargeable tax generally follow the underlying tax and survive with it.

Chapter 7 Versus Chapter 13

The chapter you file changes whether qualifying tax debt is erased outright or paid through a plan, and it changes what happens to the taxes that do not qualify.

Chapter 7

Chapter 7 is the cleanest path for income tax that meets every discharge requirement. It gets wiped out with the rest of your dischargeable debt, and cases typically close within a few months. Tax debt that fails any part of the test survives in full, and the IRS resumes collection once the case closes. Chapter 7 does nothing to restructure what it cannot discharge.

Chapter 13

Chapter 13 puts you into a three-to-five-year repayment plan.³ Priority tax debts, meaning recent income taxes and trust fund taxes, have to be paid in full through that plan.⁴ The upside is a structured payoff over years instead of an immediate collection push. Taxes that meet the discharge tests are treated like other unsecured debt, and any unpaid portion at the end of the plan is discharged.

Older writing sometimes describes a Chapter 13 “super discharge” that reached debts Chapter 7 could not. That is no longer accurate. Since 2005, taxes tied to fraud, evasion, unfiled returns, and late-filed returns are non-dischargeable in Chapter 13 too.⁵

One more Chapter 13 requirement catches people off guard: you have to stay current on every new tax filing and payment that comes due during the case. Falling behind on post-petition taxes can get the case dismissed.³

Tax Liens Can Outlast the Discharge

Discharge erases your personal obligation to pay, but it does not automatically remove a federal tax lien the IRS already recorded against your property. A lien that attached to something you owned on the day you filed stays on that specific property even after the underlying tax is discharged.

Take a house the IRS liened before you filed Chapter 7. If the tax itself is discharged, you no longer owe the money personally. Sell the house, though, and the IRS gets paid from the proceeds. The lien does not follow you to property you buy after filing. It continues until the underlying liability is satisfied or the collection period expires.⁶

Chapter 13 has an edge here. The automatic stay blocks the IRS from recording new liens during the case, so completing a plan that discharges the underlying tax can prevent a lien from ever attaching in the first place.⁷

The Automatic Stay and a Longer IRS Clock

Filing any bankruptcy triggers an automatic stay that immediately halts most IRS collection. No wage garnishment, no bank levy, no property seizure, no new tax liens while the stay is in place.⁷ If the IRS is closing in, that pause matters right away.

There is a cost to the pause. The IRS normally has 10 years from assessment to collect a tax.⁸ Bankruptcy suspends that clock for the length of the case plus six months.⁹ Four years in Chapter 13 adds roughly four and a half years to the IRS’s collection window on any tax that comes out the other side.

The same idea applies to the discharge timing rules. The three-year and 240-day periods are suspended during any prior bankruptcy plus 90 days.¹ Someone whose earlier case was dismissed, then refiles hoping to reach older taxes, may find those clocks did not run through the first case. A few days on the wrong side of any of these deadlines is the difference between full discharge and owing everything.

When Federal Tax Debt Survives Your Case

Once the stay lifts on non-dischargeable tax, the IRS resumes collection. Three programs commonly handle what remains.

Installment Agreements

The IRS offers monthly payment plans. If you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns, you can apply online.¹⁰ Setup fees vary by application method and payment type, and taxpayers earning below 250% of the federal poverty level can have those fees waived or reimbursed.¹¹

Offer in Compromise

An offer in compromise settles the full balance for less than you owe. The IRS looks at your income, expenses, asset equity, and ability to pay before accepting.¹² Applicants normally submit a nonrefundable payment with the offer, though low-income taxpayers may qualify for an exception.¹³

Currently Not Collectible Status

If you truly cannot pay anything, the IRS may place your account in currently not collectible status, which pauses active collection. You will have to document income, expenses, and assets. Penalties and interest keep accruing, any future refunds get applied to the balance, and if you owe more than $10,000 the IRS will generally file a lien as a condition of granting the status.¹⁴

This is not forgiveness, and the IRS reviews your account periodically. But the 10-year collection clock keeps running while you are in the status, and some debts eventually expire on their own if the IRS never resumes active collection before the statute runs out.⁸

1
Office of the Law Revision Counsel. 11 US Code 507 – Priorities
2
Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
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United States Courts. Chapter 13 Bankruptcy Basics
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Office of the Law Revision Counsel. 11 US Code 1322 – Contents of Plan
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Office of the Law Revision Counsel. 11 US Code 1328 – Discharge
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Office of the Law Revision Counsel. 26 US Code 6322 – Period of Lien
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Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay
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Office of the Law Revision Counsel. 26 US Code 6502 – Collection After Assessment
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Office of the Law Revision Counsel. 26 US Code 6503 – Suspension of Running of Period of Limitation
10
Internal Revenue Service. Simple Payment Plans for Individuals and Businesses
11
Internal Revenue Service. Payment Plans; Installment Agreements
12
Internal Revenue Service. Offer in Compromise
13
Internal Revenue Service. Topic No. 204, Offers in Compromise
14
Internal Revenue Service. Temporarily Delay the Collection Process