Common Problems: Back Taxes

Back taxes pose a special problem in bankruptcy. Most tax debt is not dischargeable in Chapter 7 bankruptcy. Therefore, many people facing overwhelming tax debts file Chapter 13 bankruptcy, which involves a court-supervised repayment plan. Under the repayment plan of a Chapter 13 bankruptcy, tax debt is considered a "priority" debt, which means back taxes are paid before most other debts. Many Chapter 13 debtors are able to pay off their tax debts through their payment plan and discharge the remaining general unsecured debts like credit cards and medical bills.