Posted on August 6th, 2026

 

 

Income tax debt becomes dischargeable in a Chapter 13 filing if the tax return was due at least three years before you started your legal case.

 

Meeting this specific timeline allows you to treat older IRS or Franchise Tax Board balances as non-priority unsecured debt, similar to credit cards.

 

I wrote this to explain the strict criteria and structural requirements that determine if your tax obligations disappear or require a repayment plan.

 

The Three Year Rule for Discharging Income Tax Debt

To eliminate income tax debt through bankruptcy, your debt must meet the three-year rule. This clock starts on the date the tax return was originally due, including any valid extensions you filed. If you filed your 2020 taxes by the April 2021 deadline, that debt typically becomes eligible for discharge after April 2024. I look for this specific window to help clients reduce their total payout during the reorganization process.

 

The government also requires that you filed the return at least two years before your petition date. You cannot wait until the last minute to file old returns and expect the debt to vanish immediately. The IRS and California authorities reward taxpayers who maintain a consistent filing history. If you failed to file or submitted a fraudulent return, the three-year rule no longer applies to your situation.

 

The 240-day rule serves as a final hurdle for tax discharge eligibility. The taxing agency must not have assessed the tax debt within the 240 days preceding your filing. If the IRS finished an audit and added new balances to your account last month, those funds stay protected from discharge. I review your tax transcripts to confirm every date aligns with these statutory requirements before we submit your paperwork.

 

Why Priority Tax Claims Require Full Payment Plans

Taxes that do not meet the discharge criteria fall into the category of priority claims. Bankruptcy law mandates that you pay these priority debts in full through your Chapter 13 plan. This structure prevents the government from seizing your assets or garnishing your wages while you are under court protection. You spread these payments over three to five years to make the monthly cost manageable.

 

Priority status applies to most recent income taxes and "trust fund" taxes. If you owned a business and failed to remit payroll taxes, the law treats those funds as money held in trust for the government. These debts never lose their priority status regardless of how much time passes. I help you calculate these balances so your plan remains feasible and receives court approval.

My goal is to shift as much tax debt as possible into the non-priority category so you pay pennies on the dollar.

 

Interest and penalties receive different treatment depending on the age of the underlying tax. Penalties associated with dischargeable taxes often get discharged alongside the principal balance. Interest on priority taxes continues to accrue until you complete your plan. Organizing these details ensures your budget covers the total amount required by the trustee.

 

Four Common Types of Tax Debts That Stay After Filing

Certain financial obligations to the state or federal government remain your responsibility even after a successful case. These debts survive because the law prioritizes public funding over individual debt relief. knowledge these exceptions prevents surprises when your case concludes and you receive your discharge papers. I identify these items early in our consultation to build a realistic long-term financial strategy.

1. Recent income tax assessments from the last three years.
2. Payroll taxes withheld from employee paychecks.
3. Sales taxes collected from customers but not paid to the state.
4. Tax liens recorded against your real estate before filing.

 

Property tax liens represent a significant hurdle for homeowners seeking relief. If the county recorded a lien against your house before you filed for bankruptcy, that lien stays attached to the property. While the filing stops immediate foreclosure, you must eventually satisfy the lien to clear your title. Most clients use the five-year plan to catch up on these secured tax debts.

 

Fraudulent returns or intentional tax evasion create a permanent barrier to discharge. If the IRS proves you attempted to defeat the tax system, those specific debts stay with you forever. The court maintains a strict stance on honesty during the filing process. I verify your filing history to confirm that your past actions do not jeopardize your current path to financial stability.

 

Start Law Offices of R. Kenneth Bauer's Debt Strategy

Take the first step toward resolving your tax burdens and regaining control of your income.

 

I analyze your specific IRS and FTB transcripts to determine which debts we can eliminate.

 

Book Chapter 13 bankruptcy representation with the Law Offices of R. Kenneth Bauer to begin your recovery.

 

Stop the collection calls and start building a future free from overwhelming tax debt today.