What happens with taxes during bankruptcy? Can I discharge my tax debt?

If the tax debt doesn't qualify for discharge, what happens to it during bankruptcy? Does it just stick around? And is there any difference between Chapter 7 vs Chapter 13 for handling tax debt?

If your tax debt doesn't qualify for discharge, it remains after bankruptcy as if nothing happened. It's considered "priority debt" that survives bankruptcy. The difference between Chapter 7 and 13 is significant for tax debt. In Chapter 7, non-dischargeable tax debt simply remains your responsibility after the case closes. In Chapter 13, you'll include the tax debt in your repayment plan and pay it over 3-5 years, often without additional penalties and interest continuing to accrue. For many people with recent tax debt, Chapter 13 provides better relief since it gives you time to pay.

How exactly does this tool work? Do you just upload your tax documents and it figures everything out? I'm worried about putting my sensitive tax info on some random website.

I've tried tax analysis tools before and they've given me completely wrong information. How do you know this one is actually giving accurate advice about bankruptcy specifically?

You upload your tax documents and the AI analyzes them to identify which debts might qualify for discharge under bankruptcy rules. It's secure - they use bank-level encryption and don't store your docs after analysis. The accuracy is what impressed me. It's specifically designed to analyze tax situations including bankruptcy qualification. It references current tax code and bankruptcy laws, and unlike general tax software, it specifically checks your debt against the discharge requirements. I verified its findings with my bankruptcy attorney who was actually surprised by how detailed the analysis was.

How does this actually work? Do they just sit on hold for you and then call you? Seems like something I could just do myself with two phones.

Yeah right, no way this actually works. The IRS phone system is a disaster by design. I don't believe any service can magically get through when millions of people can't.

They have an automated system that navigates the IRS phone tree and waits in the queue. When an agent picks up, their system calls your phone and connects you. No need for two phones or waiting on hold for hours. I was skeptical too! The IRS phone system is absolutely terrible. But their system works because they've figured out the optimal times to call and have technology that can stay on hold indefinitely. They also call from numbers the IRS prioritizes, which gives them shorter wait times than individuals typically get. I was connected in 37 minutes when I had previously waited 2+ hours and got disconnected.

Do tax liens show up on credit reports? And if the tax debt gets discharged but the lien remains, what does that actually mean in practice?

Tax liens no longer appear on credit reports as of 2018 when the credit bureaus removed them from reports. Good news on that front! If your tax debt gets discharged but the lien remains, it means you don't personally owe the debt anymore, but the lien still attaches to any property you owned when the lien was filed. In practice, this means you'll still need to deal with the lien if you want to sell the property. The lien effectively makes the property itself responsible for the debt, even though you personally aren't. It's confusing but important - you might be "debt free" but your house might not be!

Thanks for bringing up state taxes. Does anyone know if tax penalties can be discharged more easily than the actual tax debt itself? I've heard the rules are different.

Yes, tax penalties and interest often have different discharge rules than the underlying tax debt! Generally, penalties related to dischargeable taxes can also be discharged if they meet the same timing requirements. However, penalties for fraud or willful evasion can never be discharged. Interest that accrued before the bankruptcy filing on dischargeable taxes is usually also dischargeable. But interest that continues to accrue during the bankruptcy process typically isn't. This is why Chapter 13 can be beneficial - it often stops penalty and interest accrual during the repayment period, even on non-dischargeable tax debt. The key is understanding which penalties you're dealing with. Failure-to-file and failure-to-pay penalties on old enough returns might qualify, but trust fund recovery penalties or fraud penalties won't.