Chapter 7 bankruptcy - Liquidation under the bankruptcy code

Liquidation under Chapter 7 is a common form of bankruptcy. It is available to individuals who cannot make regular, monthly, payments toward their debts. Businesses choosing to terminate their enterprises may also file Chapter 7. Chapter 7 provides relief to debtors regardless of the amount of debts owed or whether a debtor is solvent or insolvent. A Chapter 7 Trustee is appointed to convert the debtor’s assets into cash for distribution among creditors.

To take full advantage of the bankruptcy laws and get a fresh start, it is important that you do not continue to incur additional debt. If all or part of the reason you are filing bankruptcy is overdue federal tax debts, you may need to increase your withholding and/or your estimated tax payments. For help determining the proper withholding, visit our online Tax Withholding Estimator. For help with your estimated taxes, visit our Estimated Taxes page. 

Find basic information about Chapter 7 bankruptcy below. For more detailed information see the U.S. Courts Bankruptcy Basics Web page.

Federal tax refunds during bankruptcy

You can receive tax refunds while in bankruptcy. However, refunds may be subject to delay, to turnover requests by the Chapter 7 Trustee, or used to pay down your tax debts. If you believe your refund has been delayed, turned over, or offset against your tax debts you can check on its status by going to our Where’s My Refund tool or by contacting the IRS’ Centralized Insolvency Operations Unit at 800-973-0424. The unit is available Monday through Friday from 7:00 a.m. to 10:00 p.m. eastern time.  

Discharge

At the conclusion of your Chapter 7 bankruptcy you will receive a discharge of debt. A discharge releases you (the debtor) from personal liability for certain dischargeable debts. Some taxes may be dischargeable. Whether a federal tax debt may be discharged depends on the unique facts and circumstances of each case. Consult your bankruptcy attorney to determine which tax debts may be discharged.