- Tax relief at a glance
Stops
IRS levies, wage garnishments and State of Michigan collection
Can be discharged
Older income taxes that meet the timing rules
Cannot be discharged
Recent income taxes, payroll trust fund taxes, fraud
Chapter 7
Discharges qualifying taxes outright
Chapter 13
Pays priority taxes over 36 to 60 months
Tax liens
Can stay on property even after a discharge
What bankruptcy does to tax collection
The automatic stay applies to the IRS and the Michigan Department of Treasury the same as any other creditor. Levies on bank accounts and wages stop the day we file, and collection letters stop with them.
From there, the question is which taxes can be discharged and which have to be paid.
Which taxes can be wiped out
Income taxes can be discharged in bankruptcy if they are old enough and the returns were filed. Some taxes cannot be discharged in any chapter:
- Income taxes too recent to meet the timing rules
- Payroll taxes withheld from employees (trust fund taxes)
- Taxes for years with no return filed, or a fraudulent return
The timing rules for income tax
For an income tax to be discharged, generally all three must be true:
- The return was due, including extensions, more than three years before the bankruptcy is filed.
- The return was actually filed more than two years before the bankruptcy.
- The tax was assessed more than 240 days before the bankruptcy.
We pull your IRS account transcripts and check each year before we file.
Filing a few weeks too early can mean a tax debt that would have been discharged survives the case. Check the dates before you file.
Paying recent taxes through Chapter 13
Taxes that cannot be discharged are usually priority debts. In Chapter 13 they are paid in full across the 36 to 60 month plan, in one payment alongside your other debts, while collection stays stopped. Older taxes that meet the timing rules are treated like other unsecured debt in the same plan.
Tax liens
If the IRS or the State recorded a tax lien before you filed, the lien can stay attached to property you owned at filing even after your personal liability is discharged. This matters most for homeowners. We check for recorded liens as part of the review.
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