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Bankruptcy and Tax Debt Relief in Texas: Can You Discharge Taxes

By Javier Aponte | May 22, 2025

Can Bankruptcy Wipe Out Tax Debt in Texas?

When you’re buried under IRS debt and wondering if bankruptcy can offer a way out, the answer is both yes and no. Tax debt is one of the trickier forms of debt when it comes to dischargeability in bankruptcy—but under the right conditions, it can be erased.

Let’s break it down the Texas way—straightforward, legally accurate, and easy to follow.

How Does Tax Debt Bankruptcy Work in Texas?

To discharge tax debt through bankruptcy in Texas, several IRS and federal bankruptcy requirements must be met:

The Five Rules of Discharging IRS Debt:

  1. The 3-Year Rule
    The taxes must be related to a return that was due at least three years ago, including extensions.

  2. The 2-Year Rule
    You must have filed your tax return at least two years before filing for bankruptcy.

  3. The 240-Day Rule
    The IRS must have assessed the tax at least 240 days before you file for bankruptcy.

  4. No Fraud or Willful Evasion
    If the IRS finds intentional tax evasion or fraud, you can’t discharge the debt.

  5. The Tax Must Be Income Tax
    Payroll taxes, penalties, and some business taxes generally can’t be wiped out.

Pro Tip: If your IRS debt meets these criteria, Chapter 7 bankruptcy may completely erase it. Chapter 13 may allow you to pay it over time—often interest-free.

What Type of Bankruptcy Should I File for Tax Debt in Texas?

Chapter 7 Bankruptcy:

  • Best for: Total tax debt discharge (if IRS rules apply).

  • How it works: Liquidates non-exempt assets to pay creditors and wipes out qualifying tax debt.

Chapter 13 Bankruptcy:

  • Best for: Repaying tax debt over time without interest or penalties.

  • How it works: Creates a 3–5 year repayment plan. Great for non-dischargeable tax debt.

Curious about how the type of bankruptcy impacts your taxes? This guide to Texas bankruptcy tax implications from the IRS offers a great starting point.

What Happens to IRS Collections If I File Bankruptcy?

Once you file for bankruptcy, something powerful happens: the Automatic Stay.

That means:

  • The IRS must pause collection efforts.

  • Wage garnishments stop.

  • Property seizures are halted.

  • Aggressive IRS letters cease.

Can State and Local Taxes Be Discharged in Texas?

Yes, but with caveats.

State income tax debt is subject to the same 3-2-240 rules as federal IRS debt. But Texas doesn’t have state income tax, which simplifies your case significantly. Local taxes like property tax or sales tax often can’t be discharged but may be repaid over time in Chapter 13.

FAQs About Tax Debt and Bankruptcy in Texas

Can I file for bankruptcy if I haven’t filed my tax returns?

No. You must have filed at least the past 4 years of returns to qualify for Chapter 13. Chapter 7 also requires recent filings to consider discharge.

What if the IRS has filed a tax lien?

A discharge wipes out your personal obligation to pay the tax but not the lien itself. If the IRS recorded the lien before bankruptcy, it may still attach to your property.

Does bankruptcy stop interest and penalties on tax debt?

Yes—for discharged debts or debts included in a Chapter 13 plan, penalties and interest stop accumulating.

Why Choose Kisch Consumer Law for IRS Debt Relief in Texas?

If you’re overwhelmed by IRS notices or can’t keep up with tax payments, it’s time to get professional legal help.

Kisch Consumer Law specializes in consumer bankruptcy and IRS debt relief in Texas. Their attorneys help you:

  • Determine if your tax debt qualifies for discharge.

  • Choose the best bankruptcy chapter for your situation.

  • Handle court filings and IRS communications with confidence.

  • Build a data-driven debt relief strategy tailored to your financial reality.

Want a clearer picture of your options? Use the Kisch Consumer Law interactive bankruptcy planning tool to get personalized guidance in minutes.

Quick Tips for Texans Dealing with IRS Debt

  • File your returns on time—even if you can’t pay.

  • Check the assessment date to determine 240-day eligibility.

  • Avoid tax fraud or misstatements at all costs.

  • Consult a bankruptcy attorney before the IRS files a lien.

  • Consider Chapter 13 if your tax debt is recent or nondischargeable.

 

Still Owe the IRS? Here’s Your Next Move…

If you’re tired of dodging IRS letters or fearing wage garnishments, it’s time to ask a better question:

“What’s the smartest way to clear tax debt legally in Texas?”

Whether your IRS nightmare started last year or a decade ago, the road to relief could be as simple as a well-filed bankruptcy.

Take control now. Head over to Kisch Consumer Law’s official site and learn more about creating a data-driven strategy to tackle your tax debt—before the IRS drives off with your peace of mind.

Final Word: Don’t Let the IRS Keep You Up at Night

We get it—tax debt is like a clingy ex that keeps showing up uninvited. Bankruptcy? That’s your restraining order. And in Texas, it’s backed by both state laws and cowboy grit.

So don’t wait for another threatening letter from the IRS. Get answers, get legal help, and get your life back.

Saddle up and start fresh.

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