Can Bankruptcy Eliminate Tax Debt?

 Struggling with back taxes? Find out when bankruptcy can erase tax debt in Maryland and what rules apply to IRS obligations.

Introduction

Tax debt is one of the most stressful types of debt—especially when the IRS or Maryland Comptroller is involved. Unlike credit card debt, tax obligations are harder to get rid of. But in some cases, bankruptcy can eliminate or restructure tax debt.

The General Rule: Taxes Are Hard to Discharge

Not all tax debts are dischargeable. Bankruptcy law sets strict rules to prevent abuse. However, under the right conditions, older income tax debt may be wiped out.

When Income Taxes Can Be Discharged

To qualify, the following must be true:

• The debt is for income taxes only (not payroll or fraud penalties).

• The tax return was due at least 3 years ago.

• The return was filed at least 2 years ago.

• The tax was assessed at least 240 days ago.

• No fraud or willful evasion is involved.

If all five rules are met, bankruptcy may eliminate the tax debt.

Chapter 7 and Tax Debt

• Wipes out qualifying older income tax debts.

• Does not eliminate recent taxes, payroll taxes, or tax liens.

• Provides quick relief if you meet the discharge rules.

Chapter 13 and Tax Debt

• Allows you to repay non dischargeable tax debts (like recent IRS bills) through a 3–5 year repayment plan.

• Stops penalties and interest from growing during repayment.

• May combine repayment with elimination of older dischargeable tax debts.

Tax Liens and Bankruptcy

Even if tax debt is discharged, a tax lien recorded before filing may survive bankruptcy. This means the IRS can still claim rights to certain property. A Chapter 13 may help manage this issue.

The Bottom Line

• Bankruptcy can erase some older income taxes.

• Recent taxes and certain other obligations must still be paid.

• The right chapter of bankruptcy can provide protection and repayment solutions.

Conclusion

If tax debt is keeping you up at night, you don’t have to face it alone. Bankruptcy may provide a path to eliminate or manage IRS and Maryland tax debt.

Contact Middleton Legal today for a free consultation to see if your taxes qualify for relief.