Bankruptcy and Tax Debt

Myth: Tax debts survive bankruptcy.

Fact: You can discharge many types of tax debt, including income taxes, if certain conditions are met.

The rules relating to the discharge of tax debts are more liberal in Chapter 13 bankruptcy cases than Chapter 7 bankruptcy cases.

Tax claims (as well as all other debts) are classified as secured, priority or general unsecured debts. The classification of a debt as secured, priority or general unsecured will usually determine whether the taxpayer must pay all or none of the tax, and whether interest and/or penalty must be paid. A Chapter 13 repayment plan must propose full payment of all “priority” debts. The bankruptcy court will not approve a plan that does not meet these guidelines.

A priority tax claim includes all accrued interest though the bankruptcy filing date, but excludes all accrued penalties. The Chapter 13 plan will not pay post-filing interest on any priority claim, including priority tax claims.

What is a priority tax?

A “priority” tax is any income, employment, sales or property tax which can not be discharged in a Chapter 7 bankruptcy case. The rules are complex, so you should consult a Board Certified bankruptcy lawyer about what about what taxes cannot be discharged.

What is a secured tax debt?

Tax debts are secured if the taxing authority follows the proper procedure to obtain a tax lien. Tax liens securing the payment of Texas state taxes (property, sales, and unemployment taxes) attach to a taxpayer’s equity in all property except for the property exempt from seizure under Texas Sate exemption law. Texas State law provides for fairly liberal exemptions compared to the exemption laws of most other states.

Learn more about the Tax Debt Relief

Tax Liens & Bankruptcy
When Income Taxes Can be Discharged
Dischargeable & Non-Dischargeable Tax Debts
Statute of Limitations for Tax Claims