Can IRS Debt Be Included in Chapter 7 Bankruptcy?

Can IRS Debt Be Included in Chapter 7? Key Rules to Know

Can IRS debt be included in Chapter 7 bankruptcy? Yes, in some cases—but only if the debt meets strict eligibility criteria. While Chapter 7 can eliminate many unsecured debts, not all tax debts qualify for discharge. Understanding the requirements and exceptions is crucial before filing bankruptcy to ensure it actually relieves your IRS burden.

When Can IRS Debt Be Discharged in Chapter 7?

To determine whether your IRS debt can be eliminated in Chapter 7, the IRS uses three specific time-based rules. You must meet all three for the debt to qualify.

The Three-Year Rule

The tax return must have been due at least three years before your bankruptcy filing. This includes extensions—so if your return was due on April 15, 2020 (with no extension), you must file bankruptcy after April 15, 2023.

The Two-Year Rule

You must have actually filed the tax return at least two years before the bankruptcy. If the IRS filed a substitute return for you, it doesn’t count. You need to have filed your own return.

The 240-Day Rule

The IRS must have assessed the debt at least 240 days before your bankruptcy filing. Assessment usually happens shortly after you file, but delays or audits can shift the timeline.

For a full breakdown of how IRS assessments work, see our guide on tax debt relief.

What Types of IRS Debt Cannot Be Discharged?

Not all tax debt qualifies for relief—even if it’s old. Several types are automatically excluded from Chapter 7 discharge.

Trust Fund Taxes and Payroll Liabilities

If you withheld taxes from employees (like payroll or Social Security taxes) but didn’t remit them to the IRS, those debts are never dischargeable.

Fraudulent Returns or Willful Evasion

If the IRS believes you intentionally misreported income or expenses, the debt is treated as non-dischargeable—even if it’s old.

Unfiled Tax Returns

You can’t discharge IRS debt if you never filed a return. Filing is a basic requirement for potential discharge under Chapter 7.

How to Prove Your IRS Debt Qualifies

Before filing bankruptcy, you’ll need to confirm that your IRS debt meets the three timing rules and isn’t excluded for other reasons.

Obtain IRS Account Transcripts

These transcripts provide a full history of your tax return filing, assessment, and any collection activity. They’re essential in calculating timelines.

Work With a Bankruptcy Attorney

A qualified attorney can review your transcripts, check discharge eligibility, and help structure your case for maximum debt relief.

Confirm Filing Dates and Assessment Timelines

Be precise. Even one missed deadline can make a tax debt non-dischargeable. Filing a few weeks too early could result in permanent liability. You can also review key details with our legal help team for clarity on IRS collection timing.

Chapter 7 vs. Chapter 13 for IRS Debt

Not all IRS debts qualify for Chapter 7 discharge—but that doesn’t mean you’re out of options.

Differences in Treatment of Tax Debt

Chapter 7 may wipe out qualifying tax debt entirely, while Chapter 13 allows you to repay non-dischargeable taxes over a 3- to 5-year plan without penalties and interest.

When Chapter 13 May Be More Beneficial

If your tax debt doesn’t meet the rules or includes recent filings, Chapter 13 might be a better fit. It can prevent collections while spreading payments out.

Long-Term Implications of Each Option

Chapter 7 offers faster relief but leaves behind debt that doesn’t qualify. Chapter 13 takes longer but may handle more complex IRS balances.

Can IRS Debt Be Wiped Out with Chapter 7 Bankruptcy?

In short, can IRS debt be included in Chapter 7 bankruptcy? Yes, but it depends on the age of the debt, when you filed, and whether the IRS has already assessed the taxes. Filing bankruptcy without verifying eligibility could leave you still owing the IRS. However, if your debt meets all the criteria, Chapter 7 could wipe it out completely—offering a fresh start free from IRS pressure.

Talk to a Bankruptcy Attorney to See If Your IRS Debt Qualifies for Chapter 7

If you’re wondering whether your IRS debt qualifies for Chapter 7, the safest step is to speak with a bankruptcy attorney. They can review your tax history, obtain necessary documents from the IRS, and determine whether your debt is dischargeable. Contact us today for personalized guidance or connect with a specialist through Legal Brand Marketing to avoid costly surprises and regain financial stability.

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