Can bankruptcy help with my income tax obligation?

Section 523 of the U.S. Bankruptcy Code governs the dischargeability of taxes. Generally, taxes on income owed to a “governmental unit” are not dischargeable in bankruptcy unless they are owed for a taxable year for which a return was due more than three years before the filing of the bankruptcy case, and certain other requirements are met.

Often, some of the tax obligation is dischargeable, but the more recent taxes are not. In that case, the dischargeable portion can be wiped out in a bankruptcy, thereby substantially reducing the total obligation.

However, even if your income taxes are not dischargeable in a Chapter 7 bankruptcy, you may be able to deal with them through a Chapter 13 plan. In many Chapter 13 cases, we are able to set up a plan to repay the taxes, while discharging other unsecured debts like credit cards and medical bills.

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