Non Dischargeable Taxes in Chapter 13 Bankruptcy

Many people assume that taxes are not dischargeable in bankruptcy, and while there are provisions in the Bankruptcy Code that deny a debtor a discharge for taxes, they do not apply to all situations.
Individual income taxes will generally not receive a discharge if the bankruptcy petition is filed less than three years after the due date of the tax return, or less than two years after the date the tax return is actually filed. Income taxes will also not receive a discharge, if the debtor made a fraudulent return or willfully attempted to evade or defeat such tax.

If an individual files a Chapter 7 bankruptcy he or she will have to deal with the IRS on these nondischargeable taxes after the discharge is received. In a Chapter 13 bankruptcy these non dischargeable taxes will receive a discharge, although if the taxes are a priority debt the plan will need to provide for payment of 100% of the tax.

The key word here though is priority debt rather than nondischargeable taxes. For income tax returns that were due less than three years before the bankruptcy filing the taxes are a priority debt and the Chapter 13 bankruptcy plan will have to pay the entire tax. For taxes that are dischargeable merely because the return is filed late though the debt is not a priority debt and the Chapter 13 plan can call for the same percentage payment on these taxes as it provides for other unsecured debts.