Discharging Tax Debt Under Chapter 7
A common misconception is that federal taxes cannot be discharged through bankruptcy. A Chapter 7 filing can be a very powerful tool in obtaining relief for past due taxes.
What is Chapter 7 Bankruptcy?
A petition filed under Chapter 7 of the Bankruptcy Code is used to discharge debt through liquidation of assets. However, exempt and excluded assets are retained by the debtor. Examples of exempt assets include your homestead up to 1 acre, personal property ($30-60K), life insurance, pensions for state and local employees, tools of trade, earned but unpaid wages, and unpaid commissions up to 75%.