Can Bankruptcy Discharge Tax Debts?
Updated: Mar 29
Most people have heard that bankruptcy can’t help you with tax debts, however that is not completely true. While taxes are usually considered a special kind of debt and would require you to pay them off, some taxes can be discharged, or wiped out, in bankruptcy. Here are some situations where bankruptcy can help with taxes.
Taxes owed to a city or town usually must be paid, but depending on when they became due, they may lose their "priority" status and be considered dischargeable in bankruptcy. A property tax debt due more than a year before the bankruptcy is filed does not have any special status and can be wiped out.
This usually comes up with automobile taxes. Often, Connecticut cities and municipalities will insist that “even if you discharge the debt, you won’t be able to register a car with the DMV.” I have heard that, personally, from Bridgeport Connecticut municipal workers more than once. That is not necessarily true. Once the debts have been properly discharged in bankruptcy, the city or town cannot try to collect them anymore, and further cannot obstruct you from registering your car for that outstanding tax debt. If you have any questions about this, please contact us to see if we can help.
Federal Income Taxes
Yes, even Federal Income Taxes can be discharged! It is commonly said that you can not discharge IRS tax debts at all. The truth is that income tax debts due more than three (3) years before filing bankruptcy may not be entitled to any special "priority" status. Still, there are other requirements regarding whether you filed the taxes, so you should check with a knowledgeable bankruptcy attorney to see if your tax debts qualify for discharge.
If you are contemplating bankruptcy but have tax debts you are worried about, or if you have recently received a bankruptcy discharge and are having difficulty registering your car because of city or town property taxes, contact us HERE to see if we can help.