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Can Chapter 7 bankruptcy discharge Massachusetts income tax debt?

Among the types of debt that can overwhelm a Massachusetts family, federal income tax debt can create more than its share of stress. When an individual owes back taxes, the IRS has some formidable collection powers, including tax liens and property seizure. It is difficult to discharge income tax debt in bankruptcy, but in some circumstances, it can be done.

A debtor has a better chance of getting tax debts discharged in Chapter 7 bankruptcy than in Chapter 13. In a Chapter 13 bankruptcy, all debts, including tax debt, are put on a payment plan. In Chapter 7, debts are discharged, and in some cases, this can include federal income tax debt.

Federal tax debt will only be discharged if certain conditions are met. First, only income taxes can be discharged. Other taxes, including payroll taxes, are not dischargeable. And, if a federal tax lien has been placed on the debtor's property, the lien cannot be discharged.

Second, the debtor must have filed a return for the taxes in question. Taxes owed for unfiled returns cannot be discharged. The debtor must have filed the return two years or more before the bankruptcy filing date.

Third, tax debt less than three years old cannot be discharged. The tax debt must be from a return with an original due date three years or more prior to the bankruptcy filing date. Finally, income taxes will not be discharged if the debtor committed tax fraud or willfully tried to evade the taxes.

Getting income tax debt discharged in bankruptcy is not easy. If discharge is not possible other options, including settlement of the debt through an offer in compromise, or an installment payment plan, may be available. An experienced bankruptcy attorney can help a debtor evaluate the best options.

Source:, "Bankruptcy and Taxes: Eliminating Tax Debts in Bankruptcy," accessed on Jan. 29, 2015

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