Many people mistakenly believe it is not possible to include tax debt in your Chapter 7 bankruptcy filing. However, discharging past income tax debt in Chapter 7 bankruptcy is possible if you meet all of the necessary qualifications.

If you believe you meet all five of the following requirements, you should be able to include debt from past income tax with your Chapter 7 bankruptcy filing.

To learn more about the different chapters of bankruptcy, read our other article, “Filing Bankruptcy in Wisconsin and Illinois.”

1. Source of Tax

In order to include tax debt with your Chapter 7 bankruptcy, the taxes must have been income-based in nature. (This does not include payroll tax.) That means, the tax debt amount must have been a result of state or federal income tax or taxes on gross receipts.

Income tax is the only kind of debt you will be allowed to discharge when filing for Chapter 7.

 

2. Due Date of Tax Return

This outstanding tax amount must have been from a tax return which would have been due at least three years prior; this includes all valid extensions.

[Read also:] Bankruptcy Law: The Chapter 7 Means Test

 

For example, if you wanted to have your 2012 income tax relieved with your Chapter 7 bankruptcy filing in 2016, the due date to file all extensions must have expired by 2013.

3. Date of Your Tax Filing

An additional requirement you must meet in order to include your income tax debt in your bankruptcy is based on the date you filed your tax return.

It’s not enough for a tax return to just be late to qualify, you must have filed your tax return at least two years before filing for Chapter 7 bankruptcy.

4. Date of Tax Assessment

The debt you are hoping to include with your Chapter 7 filing must be based on taxes you were assessed, or charged, at least 240 days prior to filing for bankruptcy.

[Read also:] Filing Chapter 7 Bankruptcy: What You Need to Know

5. Legitimate Reason Taxes Were Not Paid

As a final requirement in order to have your income tax debt forgiven as part of your bankruptcy, your tax return cannot be fraudulent. In other words, you must not be found guilty of willful tax evasion or fraud. This includes your spouse, as well, if you are filing a joint return.
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Next Steps in Filing for Chapter 7 Bankruptcy

If you are considering filing for bankruptcy in either Wisconsin or Illinois and have questions about what type of bankruptcy make the most sense for you, or if you have other questions, such as if you can include student loan debt in your bankruptcy filing, contact an experienced bankruptcy attorney to explore your options and determine your best path as you strive to improve your financial outlook.

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