Can Bankruptcy Discharge Tax Debt?

6 days ago

2 min read

Tax debt frightens people more than any other kind, and the fear is mostly about the collector rather than the amount. What most people do not know is that some income tax debt is dischargeable in bankruptcy. Whether yours is comes down almost entirely to dates.

What the IRS account screen says

Details by year
Tax year: You owe
2025: $0.00
2024: $0.00
2022: $8,950.82
Total amount owed: $8,950.82
Source: sa.www4.irs.gov

What the Maryland Comptroller bill says

State of Maryland, Comptroller of Maryland, INSTALLMENT BILL
Date: May 27, 2026
Remaining Balance Due: $13,267.94
Installment Amount: $415.31
Due Date: June 15, 2026
Revenue Administration Division, 110 Carroll Street, Annapolis, MD 21411

The year a tax belongs to is the whole question

Notice that the IRS screen is organized by year, and that one old year is carrying the whole balance while the recent years read zero. That is not just bookkeeping. In bankruptcy, the year a tax belongs to largely decides whether it can be discharged.

The three timing tests

For income taxes there are three timing tests, and you have to clear all three. The return had to be due more than three years before you file, including extensions. The return had to be actually filed more than two years before you file. And the tax had to be assessed more than 240 days before you file. These come from 11 U.S.C. 507(a)(8) and 523(a)(1). Certain events pause these clocks, including a prior bankruptcy and a pending offer in compromise, which is why the dates have to be checked carefully.

What happens to tax that does not qualify

Tax that fails these tests is priority debt. It is not wiped out, and it has to be paid. In a Chapter 13 it gets paid through the plan, often without new penalties piling up, which is frequently a better outcome than an installment agreement. Some taxes are never dischargeable no matter how old they are, including trust fund taxes such as withheld payroll taxes, under 523(a)(1)(A) and 507(a)(8)(C).

Why your filing date can change the answer

The practical takeaway is that a filing date can change the result. Filing a few months earlier or later can move a tax year from dischargeable to not. That is a reason to have the conversation before you pick a date.

Common Questions

Does bankruptcy stop IRS collection?

The automatic stay stops enforced collection like levies and liens. The IRS can still assess a tax and send a notice, and it can keep auditing, under 11 U.S.C. 362(b).

What about Maryland state taxes?

Maryland income tax is analyzed under similar timing rules, but the state treatment should be confirmed for your specific years before you rely on it.

What if I never filed the return?

An unfiled return generally blocks discharge for that year under 523(a)(1)(B).

Read the complete guides to Chapter 13 bankruptcy in Maryland and Chapter 7 bankruptcy in Maryland, or go back to the full document series, What Debt Actually Looks Like. If you want to talk it through, you can book a free consultation or call 240-896-3253.