Most people who owe the IRS and start reading about bankruptcy ask the same question first: which chapter? The honest answer is that the chapter matters less than the dates on your tax transcripts. But once you know those dates, the choice between Chapter 7 and Chapter 13 gets a lot clearer.
Here is how each one actually treats tax debt, and the questions that usually decide it.
What Chapter 7 does with tax debt
Chapter 7 is a liquidation case. A trustee looks for nonexempt property to sell, pays creditors from whatever that brings in, and the case usually closes in a matter of months. Most individual Chapter 7 cases have little or nothing for the trustee to sell.
For taxes, Chapter 7 is all or nothing on a year-by-year basis. A tax year either qualifies for discharge or it does not. Income taxes generally can be discharged only if they clear the timing rules in 11 U.S.C. § 523(a)(1) and § 507(a)(8): the return was due (with extensions) more than three years before you file, you filed the return more than two years before you file, and the tax was assessed more than 240 days before you file. You also cannot have filed a fraudulent return or willfully tried to evade the tax.
If a year passes, Chapter 7 can wipe out the tax, the interest, and the penalties tied to it. If a year fails, Chapter 7 does nothing to it except pause collection while the case is open. When the case closes, the IRS picks up where it left off, plus interest.
One more catch: a federal tax lien recorded before you file stays attached to the property you owned on the filing date, even after the personal liability is discharged. The Supreme Court's reasoning in Dewsnup v. Timm, 502 U.S. 410 (1992), is why liens ride through bankruptcy. More on that in why a federal tax lien survives bankruptcy.
What Chapter 13 does with tax debt
Chapter 13 is a repayment plan. You propose a plan that runs three to five years, a trustee collects a monthly payment, and creditors get paid according to rules the Code sets. The length depends largely on whether your household income is above or below your state's median (11 U.S.C. § 1322(d) and § 1325(b)(4)).
Chapter 13 sorts your taxes into buckets instead of treating them as pass or fail:
- Priority taxes (newer income taxes, trust fund taxes, and others listed in § 507(a)(8)) must be paid in full through the plan unless the IRS agrees otherwise. That rule is in 11 U.S.C. § 1322(a)(2).
- General unsecured taxes (older years that pass the timing rules) get paid the same percentage as your credit cards and medical bills, which is sometimes very little.
- Secured taxes (taxes backed by a recorded lien, up to the value of your property) are paid as secured claims, with interest.
The big advantage: the plan pays the priority tax claim itself, and interest that had not accrued by the filing date is not part of the allowed claim (11 U.S.C. § 502(b)(2)). If you finish the plan, the discharge under 11 U.S.C. § 1328(a) covers more than people expect. Section 1328(a)(2) excepts trust fund taxes, taxes on unfiled or late returns covered by § 523(a)(1)(B), and fraud or evasion taxes under § 523(a)(1)(C). It does not list ordinary priority income taxes, which the plan has paid by then.
For a person sitting on three recent tax years plus five old ones, Chapter 13 can be the difference between paying the IRS for a decade and paying a fixed plan for five years with the clock stopped on new interest. Details on the plan math are in paying priority tax claims in a Chapter 13 plan.
Side by side
| Issue | Chapter 7 | Chapter 13 |
|---|---|---|
| Old income taxes that pass the timing rules | Can be discharged | Treated as general unsecured; balance discharged at the end |
| Recent (priority) income taxes | Not discharged; collection resumes after the case | Paid in full through the plan |
| Post-filing interest on priority taxes | Keeps running | Not part of the allowed priority claim |
| Recorded federal tax lien | Survives on property owned at filing | Secured portion paid through the plan |
| Length | Usually a few months | 3 to 5 years |
| Unfiled returns | Unfiled years are not dischargeable | Last four years must be filed under § 1308 |
Can you even file Chapter 13?
Chapter 13 has debt ceilings. Under 11 U.S.C. § 109(e), for cases filed on or after April 1, 2025, your noncontingent, liquidated unsecured debts must be less than $526,700 and your noncontingent, liquidated secured debts less than $1,580,125. Those figures adjust every three years, so check the number in effect on the day you file.
Tax debt counts toward those limits, and a large IRS balance can push you over by itself. The Eleventh Circuit, which covers Florida, held in United States v. Verdunn, 89 F.3d 799 (11th Cir. 1996), that a tax liability in a notice of deficiency counts as a noncontingent, liquidated debt even while you are fighting it in Tax Court. You do not get to leave it off the scale because you disagree with it. If you are over the limits, the conversation moves to Chapter 11, which is its own animal; see Subchapter V and Chapter 11 for business owners.
Can you even file Chapter 7?
Chapter 7 has its own gate: the means test in 11 U.S.C. § 707(b). Here is the good news people miss. The means test applies only when your debts are primarily consumer debts. Income taxes are generally not consumer debts, so a person whose debt is mostly IRS debt may skip the means test entirely. The details are in the means test and tax debt.
When Chapter 7 tends to fit
- Most or all of your tax years already pass the three-year, two-year, and 240-day rules.
- You filed your returns yourself (not just IRS substitutes for return).
- No recorded federal tax lien, or the lien attaches to little of value.
- You have little nonexempt property for a trustee to sell.
When Chapter 13 tends to fit
- You have a mix of old and recent tax years, and the recent ones are too big to pay on your own.
- The IRS has a recorded lien on a house or other property you want to keep.
- You owe trust fund taxes or other priority taxes that will never be dischargeable in Chapter 7.
- You have nonexempt property you would lose in Chapter 7.
- Your income is too high for Chapter 7 and your debts are mostly consumer debts.
Timing can change the answer
Sometimes the right chapter is "neither, yet." If a big tax year crosses the three-year line in four months, filing Chapter 7 now converts a dischargeable debt into a nondischargeable one. Waiting can change the outcome entirely. Run your years through the bankruptcy discharge calculator before you pick a chapter, then have someone confirm the dates against your actual IRS account transcripts.
Be careful with anything that stops the clocks. A prior bankruptcy, an offer in compromise, or a collection due process hearing can suspend the lookback periods under the hanging paragraph at the end of § 507(a)(8). People who skip this step file on the wrong day, and the IRS does not send a sympathy card.
For a broader look at when bankruptcy makes sense for IRS problems at all, read bankruptcy for tax problems.
Talk to a tax attorney before you file
Choosing a chapter is a tax decision as much as a bankruptcy decision. If you owe the IRS and are thinking about bankruptcy, call Darrin T. Mish, tax attorney, at (813) 229-7100 before you sign a petition. Every case turns on its own transcripts and dates; this page is general information, not legal advice for your situation. Pick the chapter after you know the dates, not before.