Take It to The Bank: Taxes in Bankruptcies Not Easy to Unload

Before filing a consumer bankruptcy, individual debtors must determine their outstanding tax liabilities for purposes of completing a means test and properly filling out their schedules. Individuals must also provide copies of their tax returns to the U.S. Trustee. Various governmental units may have secured claims, priority claims, or general unsecured claims against the debtor and, with certain exceptions, are prohibited by the automatic stay from seeking payment of such claims outside of the bankruptcy. But there’s more to learn. This practice note discusses an individual debtor's considerations and responsibilities with respect to outstanding tax claims and tax returns as well as the treatment of tax claims in bankruptcy. 

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Related Content

• Chapter 11 for Individuals
  Reference this practice note for individuals discharging their debts in a Chapter 11 filing. The debtor can stretch out tax payments due, although taxes entitled to priority must be paid in full over five years from the date of the order of relief. 

• Chapter 13 Bankruptcy
  Learn more about a Chapter 13, which is only available to individual debtors with regular income. Applicants are required to provide a copy of their most recently filed tax return to the Chapter 13 trustee and must ensure that all tax returns required to be filed within the four-year period preceding the filing of the Chapter 13 case have been filed with the appropriate taxing authority.

• Cancellation of Indebtedness Income and Other Debt Issues
  See what happens in bankruptcies, recognizing the general rule that debt that is forgiven or discharged for less than the full amount owed results in the canceled debt becoming taxable.

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