If you have unfiled taxes for prior years, will these tax liabilities go away or get discharged in bankruptcy?

Victoria Maydanik California Chapter 13 Bankruptcy

No. Prior to the changes in bankruptcy laws in 2005, the scope of the discharge of taxes was considerably broader. Discharge of debts in a Chapter 13 case was aptly called a “super” discharge.

While you can still discharge some old tax liabilities, be sure that all of your returns have been filed and accepted by the IRS and the state.

If you put delay filing taxes, the consequences are serious. First, even if you eventually file a return, the tax for that year may still end up being non-dischargeable if the IRS and the state had already finalized their assessments by that point.

Second, if you wait long enough, IRS and the state may put tax liens on your property – the tax liens attach to all of your real and personal property, including your home, clothing, furniture, bank accounts, and retirement funds. Tax liens are secured debts, and don’t go away when you file bankruptcy – or at the very least don’t go away completely.

Third, failure to file taxes can result in additional penalties and even criminal prosecution.

Fourth, if you don’t work the issues out with the IRS and the state, they can garnish your wages, seize refunds that are due to you, take money from your bank accounts as well as other property.

Fifth, if you would like to file a bankruptcy case, your ability to get your plan confirmed and to get other debts discharged will be eliminated or delayed if you have unfiled taxes.

The more time goes by, the more difficult it is to fix the situation, so don’t put it off. If you are not able to submit complete payment with your tax return, that’s ok – don’t let it stop you from filing the returns. If you have liabilities, IRS and the state will usually work with you to set up a payment plan. You may also be able to repay your tax liabilities on better terms through the Chapter 13 plan.