What happens with taxes during the bankruptcy filing process?

This is really helpful, thanks. What about payroll taxes from my failed business? Are those treated the same way as income taxes?

Payroll taxes are treated differently and are generally NOT dischargeable in bankruptcy. If you were responsible for collecting and paying employment taxes for your business, these are considered "trust fund" taxes because you were essentially holding that money in trust for the government. Employment-related taxes including withheld income taxes, Social Security, and Medicare (FICA) taxes typically can't be eliminated through bankruptcy regardless of how old they are or whether you filed returns. This is one of the key distinctions in tax treatment during bankruptcy proceedings.

I'm curious - how accurate was this compared to what your actual bankruptcy lawyer told you? I've been looking at different tools but worried about relying on automated advice for something this important.

Does it work for both Chapter 7 and Chapter 13 cases? I'm leaning towards Chapter 13 because I have some assets I don't want to lose.

The information matched almost exactly what my bankruptcy attorney told me, but I was able to go into the meeting much more prepared and we spent less time on the basics. That saved me money on legal fees and let us focus on strategy instead of education. Yes, it analyzes both Chapter 7 and Chapter 13 scenarios and explains the differences. For Chapter 13, it shows how different tax debts get prioritized in your repayment plan and estimates what your monthly payments might look like. It was really helpful for seeing the difference between secured and unsecured tax debts.

How does this actually work? Sounds kinda sketchy that they can somehow get through when regular people can't.

Yeah right. No way this works. The IRS phone system is deliberately designed to be impossible. If this actually worked, everyone would use it and it would be all over the news.

It's not sketchy at all - they use an automated system that keeps dialing and waiting in the queue for you instead of you having to do it yourself. They don't get any special access or jump the line - they just handle the frustrating wait time part using technology. I was skeptical too when I first heard about it. But it literally worked exactly as advertised - they called me when an IRS agent was on the line. No magic, just technology solving a real problem. Many tax professionals use similar services because it's not worth their hourly rate to sit on hold for hours.

Is there any way around this? I'm planning to file but expecting about $5k in refunds this year.

Some strategies exist but they're very timing-dependent. If you've already received your refund, you could spend it on necessary expenses before filing (but be careful, as the trustee can look back at recent spending). Some people delay filing until after they've received and spent their refund. Another option is to adjust your withholding now so you get more in each paycheck and less as a refund, but that only helps for future tax years. Some bankruptcy courts also allow you to exempt a portion of your refund, especially if it includes earned income credit or child tax credits.

Is that seriously true? Now I'm scared to file. I have a couple years where I didn't file because my business was losing money and I didn't think I needed to.

It's not technically an "audit" in the formal sense but yes, the bankruptcy court notifies the IRS of all filings. And at minimum, the bankruptcy trustee will review your last few years of tax returns. If you haven't filed for some years, the court may dismiss your case or require you to file those returns before proceeding. Even if your business was losing money, you were still required to file returns. Before you proceed with bankruptcy, I'd strongly recommend getting those unfiled returns completed and submitted. Most bankruptcy attorneys will insist on this anyway, as unfiled returns can seriously complicate your case and may prevent certain tax debts from being discharged.