The IRS “What Ifs” for Struggling Taxpayers – Debt Related (B-4)

The IRS “What Ifs” for Struggling Taxpayers – Debt Related (B-4)
What if I file for bankruptcy protection?
Debts discharged through bankruptcy are not considered taxable income. If you are an
individual debtor who files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code,
a separate “estate” is created consisting of property that belonged to you before the filing
date. This bankruptcy estate is a new taxable entity, completely separate from you as an
individual taxpayer. Please note, however, that some tax debts are not dischargeable in a
bankruptcy action. For more information, see  Publication 908, Bankruptcy Tax Guide .
A bankruptcy filing generally stops enforcement action (i.e., levy) and suspends the
statute of limitations to collect. The running of the collection period is suspended during
the time the bankruptcy is pending. Generally, a bankruptcy is pending from the time a
petition is filed to the date the bankruptcy is discharged, dismissed, or closed. Further, the
running of the collection period is extended for an additional 6 months upon the
conclusion of the bankruptcy. Refer to  Tax Topic No. 160 – Statute Expiration Dates .
(IRS Web Site Updated 3/28/22) (TTT 07/26/22)