If you live in Maryland and owe back taxes to the IRS, you’re not alone. Many people facing serious tax debt look into bankruptcy for relief. Bankruptcy can help with certain financial problems, but it doesn’t wipe out every type of debt. Knowing how bankruptcy and tax debt work together helps you make smarter decisions.
When bankruptcy can erase tax debt
In some cases, you can discharge income tax debt through Chapter 7 or Chapter 13 bankruptcy, but only if it meets strict conditions:
- The tax return must have been due at least three years before you file for bankruptcy.
- You must have filed the tax return at least two years before filing.
- The IRS must have assessed the debt at least 240 days before the bankruptcy case begins.
Tax professionals generally refer to these three conditions as the “3-2-240 Rule.”
If your tax debt qualifies, Chapter 7 bankruptcy can eliminate it without requiring repayment. However, Chapter 13 works differently in that it sets up a court-approved repayment plan that lasts three to five years. Even if your tax debt doesn’t qualify for discharge, Chapter 13 lets you manage it in a structured way while stopping penalties, interest, and IRS collection actions.
Tax debts that bankruptcy won’t remove
Certain debts remain even after bankruptcy, including payroll taxes, tax penalties from fraud, and any taxes linked to unfiled returns. Bankruptcy also does not get rid of tax liens that the government recorded before you filed. Even if the IRS decides to erase the actual tax debt, the lien can stay attached to your home or property until you pay it.
Maryland state tax debt follows rules similar to federal tax debt. If you owe back income taxes to the state, they must meet the same guidelines to be eligible for discharge. The age of the debt, the date of assessment, and the filing history all matter.
Bankruptcy won’t solve every tax problem, but it can offer real relief in specific situations. Understanding these rules helps you avoid mistakes, plan better, and take control of your financial future.
