Can taxes be discharged in bankruptcy?
There is a popular misconception that taxes are not dischargeable in bankruptcy. In fact, taxes are often dischargeable in bankruptcy. There are complicated rules governing the dischargeability of tax liabilities. Generally, taxes that are less than three years old since assessment are priority taxes and may not be discharged. Any taxes that are over three years old from the date of assessment are not priority taxes and may be discharged in a bankruptcy action. If the Internal Revenue Service or the State of Pennsylvania has filed a tax lien, the tax is still dischargeable if it is over three years old. The tax lien creates another problem, however. While the tax is discharged, the lien survives bankruptcy and remains attached to the debtor’s assets, to the extent of the value of the debtor’s property at the time of the bankruptcy. The Internal Revenue Service or the State of Pennsylvania may seek to recover that amount from the assets of the debtor, even after the discharge in bankrup
