Which tax debts a filing can reach
Bankruptcy for tax relief is not all-or-nothing. Some older income tax debts can be discharged if they pass timing tests tied to the return and the assessment, and if no fraud or willful evasion was involved. Late-filed returns raise particular problems, and courts are divided on whether some of them count as returns at all for this purpose. Taxes that a business withheld from employees' wages or collected from customers, often called trust fund taxes, are generally not dischargeable, and the same is usually true of recent taxes. A tax lien already recorded against your property can survive even if your personal liability is discharged.
Chapter 7 and Chapter 13 handle taxes differently
Chapter 7 may eliminate qualifying tax debts but does little for those that do not qualify, and a recorded lien can stay with your property. Chapter 13 lets you pay priority taxes through a plan over time while the automatic stay holds off levies and garnishments. To use Chapter 13 you generally need to have filed your recent tax returns, and the IRS or the New York State Department of Taxation and Finance will file claims that you can review and dispute. Gather IRS account transcripts for each year, state notices, copies of your returns with the dates they were filed, and any installment agreements or offers you have made.
Weighing bankruptcy against tax-side options
Bankruptcy is one option alongside installment agreements, offers in compromise, penalty relief, and status as currently not collectible, and the choice depends on the years involved, your assets, and your income. Filing too soon can mean that a debt which would have qualified later remains owed, so the timing deserves careful thought. If business payroll taxes are involved, personal liability as a responsible person is a separate question with its own analysis. In a first meeting we review transcripts year by year and identify which debts a bankruptcy could actually reach.
