Just like Student Loan Debt, Tax Debt is one of the exceptions to discharge in bankruptcy. In bankruptcy, tax debt is classified as priority, secured and unsecured. The classifications are very important in knowing what is and is not dischargable and how it will be treated in your bankruptcy.
Priority tax debts – get priority. In other words they are paid first. If money is available to pay creditors in a Chapter 7 case or a Chapter 13 case, priority debts get paid before most other debts. Secured debt comes next. And finally if you are paying your unsecured creditors any funds, the unsecured debt will be paid last.
Secured tax debts. If the IRS has filed a tax lien on your property the debt is secured by your property. You can wipe out your liability for the debt, but your assets are still on the line. The IRS can wait until you sell the property.
Filing for bankruptcy protection will also allow you more time to negotiate with the IRS. This is because the automatic stay in bankruptcy acts like a pause button on the IRS’s collection of your money. They can’t contact you but you can contact them to negotiate. Now you are in control.