Can You Use Bankruptcy to Deal with IRS Debt in Texas?

 Posted on July 24, 2025 in Bankruptcy

In the state of Texas, where there is no state income tax, residents can find at least some relief from tax problems. However, just because there is no state tax does not exempt you from owing federal taxes to the IRS.

It can be extremely stressful to owe federal income tax, and the penalties can be relentless. If you feel that you will never be able to repay the IRS the money you owe, and it keeps you up at night, you may wonder whether bankruptcy could eliminate your IRS debt.

The answer to that question is far from simple and can depend on the type of tax owed, how old the debt is, and which type of bankruptcy you intend to file. Consulting with a knowledgeable Dallas, TX bankruptcy attorney should be your first step in your quest to eliminate debt and achieve a fresh financial start.   

Could Bankruptcy Be a Useful Tool for Eliminating Some IRS Debt?

Bankruptcy can be useful in eliminating some IRS debt, but be aware that what you can eliminate will depend on the specific circumstances and the type of tax debt. Under specific conditions, some federal income tax debts can be discharged through Chapter 7 bankruptcy.

Under Chapter 13 bankruptcy, a structured repayment plan can potentially help manage federal tax debt. If your federal tax debt is dischargeable under Chapter 7, then once you file for bankruptcy, IRS collection activities, such as wage garnishment and bank levies, will be temporarily halted by an automatic stay.

What IRS Debts Are Dischargeable in Chapter 7 Bankruptcy?

First, no payroll or business-related federal taxes are dischargeable under Chapter 7 bankruptcy laws. The only IRS debts that are dischargeable are income tax debts, and only under specific circumstances. Federal income tax debts must meet the 3-2-240 rule, which means:

• It has been at least three years since the tax return was due.
• It has been at least two years since the tax return was filed.
• At least 240 days have passed since the IRS assessed the tax.
• There must be no fraudulent or willful evasion involved.

Subject to the qualifications listed above, a Chapter 7 bankruptcy could potentially allow for full discharge of all qualifying federal income tax debt. If Chapter 7 is not an option, Chapter 13 bankruptcy can establish a manageable 3-5 year repayment plan that prevents penalties and interest from accruing.

If an IRS tax lien was filed before you file for bankruptcy, be aware that such a lien attaches to the property, even in the generous homestead-protected environment in Texas. In other words, while the bankruptcy exemptions in Texas protect your home, any pre-existing IRS liens will survive.

What Steps Should You Take When Facing IRS Debt?

If you are considering filing for bankruptcy in Texas, consider the following:

• If you have any missing tax returns, file them before you file for bankruptcy.
• Avoid filing an amended return close to your bankruptcy date.
• Plan ahead to ensure your IRS tax debts meet the standards for discharge.
• Work with an experienced Texas bankruptcy attorney who understands both local bankruptcy court practices and IRS timelines.

Contact a Parker County, TX Bankruptcy Attorney

If you are struggling with IRS debt, bankruptcy could be part of the solution, but only when the timing and type of debt meet the strict requirements. A skilled Fort Worth, TX bankruptcy lawyer from Acker Warren P.C. can help you determine whether bankruptcy is the right choice for you and your situation.

When you choose our firm, you will always speak to an attorney as opposed to a paralegal. In some cases, we can work with you virtually for your convenience. We also provide an extremely fast turnaround time. To schedule your free consultation, call 817-752-9033.