Can you eliminate your IRS debt when you file bankruptcy in FL?

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Can you eliminate your IRS debt when you file bankruptcy in FL?

Have or will the law change back to allow you to eliminate your IRS debt when I file bankruptcy in Florida?

Asked on May 17, 2009 under Bankruptcy Law, Florida


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 15 years ago | Contributor


IRS debt can be forgiven in bankruptcy.  There are however certain requirements:

The debt must be from taxes on income;
It must be from tax years in which a tax return was filed and which is 3 years old or older;
Two years must have elapsed since the tax returns were filed (even if they were filed late);
At least 240 days must have elapsed since an Offer in Compromise has been terminated (if one was ever entered into).

There are other lesser factors which enter into I.R.S. forgiveness other than these general ones, but they would be specific to your case. 

(Note: filing a Chapter 13 changes these rules.  Basically the debt could be reduced but not eliminated).

Additionally, if for example, someone filed a Chapter 7 bankruptcy after the IRS had placed a tax lien on his homestead. The general rule is that income taxes due prior to filing Chapter 7 are dischargeable (subject to the above requirements). However, even after the bankruptcy was over the IRS lien would still encumber the house and would have to be paid from sale proceeds at time of sale.

Why, you ask would the house still be subject to an IRS lien if your income taxes were wiped out in the bankruptcy?  The answer is that when the IRS issues a tax lien that lien changes the income tax obligation to a secured debt.  If when you filed bankruptcy the IRS had already obtained a security interest in your homestead then that property would not be protected from IRS liens.  Even if the income taxes were otherwise dischargeable, the IRS tax lien, just like other pre-petitions mortgages and security interest, cannot be wiped out in a bankruptcy.  If the IRS gets a tax lien on your property before you file bankruptcy, the bankruptcy will not wipe out the tax lien.

This is just a quick overview.  Bankrutcy can be a complicated matter and you should talk your situation over with a bankruptcy attorney before making any decisions.  Because timing can be so important here, the sooner the better.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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