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Chapter 13 Bankruptcy is Applicable on Back Taxes Owed to the Federal Government

June 22, 2017

What about back taxes that are owed to the IRS? Would Chapter 13 protect against that?

Great question. the answer is Yes. Chapter 13 applies to the IRS. The IRS is a debt collection agency that represents the federal government. They’re collected just like everyone else. And when you file the bankruptcy, they have to stop debt collection activities, like garnishments, levies. They may have already placed a lean against some of your assets, the lean is valid. In bankruptcy, you would have to avoid like a second or a third but you can avoid it if the circumstances are right and we actually just do that for the client of ours. But the — when it comes to the government, there’s what we call priority debt and non-priority debt. If the debt is priority, which usually is 3-years old on a filed return, it has to be paid in full. If the debt is non-priority, which is more than 3-years old on a filed return, let’s say you owe money for 2010 and you filed your return in 2011 when you were supposed to, that debt is probably non-priority and can be discharged.