Income Taxes

• Chapter 7 filers are responsible for paying federal income taxes in the year they declare bankruptcy. They are also responsible for paying tax debts that are less than three years old.
  
  

Payroll Taxes

• Federal payroll taxes---the type that contribute to Social Security and the Federal Insurance Contributions Tax---are not wiped out by a Chapter 7 bankruptcy no matter how old they are.
  
  

Tax Liens

• If the Internal Revenue Service (IRS) has a tax lien against a debtor's property, it will likely take that property during a Chapter 7 bankruptcy proceeding. This is also true of other creditor liens; many liens put in place before bankruptcy remain in play when it comes time to liquidate the debtor's assets.
  
  

Terms and Conditions

• The IRS will erase debts older than three years only if it has not placed a lien on the debtor's property, the debtor was not attempting to evade the IRS, the IRS assessed the debtor's taxes 240 days or more before the debtor declared bankruptcy and the debtor filed a tax return at least two years before declaring bankruptcy.
  
  

State Taxes

• State taxes are subject to the same general guidelines as federal taxes. As long as the debtor was not trying to mislead the state tax agency and filed a return at least two years before declaring bankruptcy, tax debts older than three years may be discharged.