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What Taxes Will Bankruptcy Discharge?

While bankruptcy does not generally discharge income taxes, it can discharge IRS Income Taxes (1040 taxes) which came due more than three years before the filing of the case, in a chapter 7 case, if all other prerequisites are met. It can also discharge IRS Income Taxes for which the Statute of Limitations has run, generally taxes which came due more than 10 years ago, if all other prerequisites are met. IRS Income Taxes are never discharged unless a tax return has been filed for the affected year, however. And 941 (payroll) taxes are never dischargeable. If a Tax Lien has been filed by the IRS before you file your case, it may be necessary to negotiate with the IRS to release the lien after the tax is discharged. As to income taxes which cannot be discharged in a chapter 7, a chapter 13 can require the IRS to accept monthly installments as part of a chapter 13 plan and upon completion of the payments to the IRS under an approved plan, the IRS debt will be discharged.

Property taxes which were last due without penalty more than one year prior to the filing of the case can also be discharged,  if all other prerequisites are met. However, if you want to keep the items on which the property taxes are owed, the taxes must be paid, or the tax district may sell the property to pay the taxes, even though you have discharged your personal obligation to pay the taxes. In other words, if you want to continue to keep and occupy property which has property taxes owing on it, you are going to have to pay the taxes to do so, regardless. If you are behind on your property taxes on your home or other property which you wish to keep, a chapter 13 plan can enable you to pay monthly installments to bring the taxes current and stop any foreclosure actions which might otherwise occur. 


 
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