How does a Chapter 7 bankruptcy work with respect to taxes?
If your taxes are dischargeable, and you file for Chapter 7, then the bankruptcy court will normally issue a general “discharge.” This is the piece of paper that officially wipes out your “dischargeable” debts, including taxes if they are in fact dischargeable. The IRS as a creditor gets a copy of this discharge. It then assigns an agent to determine if it agrees that the taxes are eligible for that discharge. In most cases, the agency will agree. The agent then goes into its master computer, adjusts your account down to zero for the tax periods at issue, and that ends the story. The IRS does NOT send you any notice, though you can ask the agency for a “record of account” that will show the zero balance.
