LaGrandeJanuary 9, 2026

Owing money to the IRS can create constant stress. Tax balances grow quickly with penalties and interest, and IRS notices often leave people unsure where to turn. While not all tax debt can be erased, bankruptcy law does offer ways to manage and, in some cases, discharge certain IRS obligations when specific rules are met.

At Yusufov Law Firm, PLLC, we help individuals and small businesses in Mesa, Phoenix, and Tucson regain financial stability through informed planning. This guide explains when Chapter 13 bankruptcy may eliminate IRS tax debt, when it cannot, and how timing, filing history, and tax type affect your options.

Dischargeable vs. Non-Dischargeable Tax Debts in Chapter 13

Some tax debts can be discharged in Chapter 13 once you complete your plan, while others must be paid in full through the plan. The difference often turns on when the return was due, when you filed it, and when the IRS assessed the tax.

Arizona filers use the same federal rules that apply nationwide, but your plan is confirmed in the United States Bankruptcy Court for the District of Arizona, so local practice affects timing and paperwork.

Requirements for Discharging Tax Debt: The 3-2-240 Rule

A simple timing checklist helps sort dischargeable taxes from those that must be paid. Many people call it the 3-2-240 rule.

  • 3-year rule. The original due date for the return, including any valid extension, must be at least three years before you file Chapter 13.
  • 2-year rule. You must have actually filed that return at least two years before filing bankruptcy.
  • 240-day rule. The IRS assessment of that tax must be at least 240 days old when you file.

If all three parts are met, the debt is usually treated as a general unsecured claim. That means it can be paid, along with credit cards and medical bills, often at a percentage set by your disposable income. After you finish the plan, any unpaid balance on that qualifying tax can be discharged.

Not all taxes can be cleared, even if the timing looks close. Some categories are carved out by law and must be paid in full.

Types of Non-Dischargeable Tax Debts

Certain tax debts are labeled as priority, and Chapter 13 does not wipe them out at the end of the plan. These have to be paid through your monthly payments to the trustee.

  • Recent income taxes that do not meet the 3-2-240 timing tests.
  • Trust fund taxes, such as withheld payroll taxes and their related penalties.
  • Taxes tied to fraud or intentional evasion, and taxes for years where no valid return was filed.

These debts must be paid in full over the plan term. The good news is that Chapter 13 can spread those payments out over three to five years, which often fits a household budget much better than IRS payment demands.

How Chapter 13 Handles Tax Debts

Chapter 13 groups claims into buckets, then your plan pays each bucket as the law requires. Taxes can land in priority, non-priority unsecured, or secured categories depending on timing and liens.

Priority Tax Debts

Priority tax debts are paid in full during the Chapter 13 plan, typically over three to five years. Interest and penalties can be limited in the plan, so the growth of the balance often slows compared to paying the IRS directly.

Spreading payments across the plan helps many Arizona families keep up with living costs while staying current on taxes. It also prevents harsh enforcement while the case is active and on track.

Non-Priority Tax Debts

Non-priority taxes are treated as general unsecured claims. They get paid from your disposable income after reasonable living costs and secured and priority claims are covered.

They often receive less than the full amount. If they are dischargeable, any unpaid part is wiped out at the end of a successful plan.

Liens change the picture, even if the underlying tax meets the timing rules. A lien secures the debt to your property up to the value of your equity at filing.

Secured Tax Debts (Tax Liens)

If the IRS filed a Notice of Federal Tax Lien before you filed bankruptcy, the claim is secured to the extent of your property value and equity. The secured portion must be paid in full through the plan to remove the lien.

The unsecured remainder, if any, is handled like other unsecured claims and can be discharged if it qualifies under the 3-2-240 rule.

The chart below summarizes how Chapter 13 treats common IRS tax categories. It is a quick reference, not a full analysis.

Tax Type Priority Status Paid in Full During Plan Dischargeable After Plan Notes
Recent income taxes Priority Yes No Fails 3-2-240 timing.
Older income taxes meeting 3-2-240, no lien Non-priority No, paid pro rata Yes Treated as general unsecured.
Trust fund payroll taxes Priority Yes No Includes withheld taxes.
Taxes with IRS lien, secured portion Secured Yes No on secured portion Lien must be satisfied to release.
Penalties tied to dischargeable taxes Non-priority No, paid pro rata Yes Often discharged with the tax.

Filing Requirements and Ongoing Obligations

You need to have filed all required tax returns to be eligible for Chapter 13 relief. Arizona trustees and judges expect proof of those filings early in the case.

You must also file future returns on time and pay current taxes while your plan is active. Missing these duties can lead to a dismissal of the case.

  • File all past-due federal and Arizona state returns before confirmation.
  • Keep paying current year taxes, including proper withholding or estimates.
  • Send copies of returns to the trustee if requested by local procedure.

Falling behind on new taxes during the case can put your plan at risk. Stay in touch with your lawyer and bookkeeper so filings and payments stay on track.

The Automatic Stay and Tax Debt

Filing Chapter 13 triggers the automatic stay, which stops most collection activity. That typically pauses levies, garnishments, and new liens from the IRS.

The stay does not erase the tax itself. It simply gives you breathing room while the plan sets the payment schedule and while disputes are sorted.

Tax Refunds During Chapter 13

Tax refunds that come in while you are in Chapter 13 can be captured for plan funding or used to pay down taxes, depending on your plan and local practice. Some plans let you keep a portion for necessary expenses.

Talk with a bankruptcy attorney before filing if you expect a sizable refund since timing your case and adjusting withholding can prevent surprises.

Is Chapter 13 Right for You? Consider These Factors

Chapter 13 works well for many Arizonans, yet it is not the only choice. Thinking through a few points can help you pick the best path.

  • The amount and type of tax debt, including whether any return was filed and whether a lien exists.
  • Your steady income and ability to handle a three- to five-year payment plan.
  • Other debts, such as a mortgage in arrears, car loans, support obligations, and medical or credit card balances.
  • Active IRS steps like garnishment, levies, or new lien filings that Chapter 13 can pause.

For some, Chapter 7 or an IRS payment agreement might fit better. A short review with counsel will make the choice clearer.

Talk with a Bankruptcy Attorney About IRS Tax Debt

IRS tax debt can limit your options unless you act with the right plan in place. Yusufov Law Firm, PLLC, helps individuals across Arizona evaluate whether Chapter 13 can reduce or discharge qualifying tax obligations while protecting income and property. We focus on clear answers, realistic timelines, and strategies that align with Arizona bankruptcy rules.

If you have questions about IRS debt, Chapter 13 eligibility, or stopping collection actions, contact our office to schedule a consultation. Call (520) 745-4429 in Tucson or (480) 788-0098 in the Mesa and Phoenix area, or reach out through our Contact Us page. A focused conversation now can help you regain control and move forward with confidence.