Income tax as well as some other types of tax can be discharged in bankruptcy if certain conditions are met. This applies in consumer bankruptcy cases, both Chapter 7 and Chapter 13, and covers Federal, State and local income tax liability. However, all requirements must be met before the bankruptcy is filed or the debt will remain collectible after the case is closed. To be dischargeable in bankruptcy, income tax must meet the following requirements:
- The income tax return must have last been due more than three years before the bankruptcy;
- The tax return must have been filed at least two years prior to the bankruptcy (in some circuits it must have been timely);
- The tax must have been assessed by the government;
- The tax returns must not have been fraudulent; and,
- There must not have been a willful attempt to evade or defeat the tax.
When each of these conditions are met, and no exceptions to the rules apply, the tax can be discharged in the bankruptcy proceeding.