Certain taxes can be eliminated entirely in a Chapter 7 bankruptcy.  The timing of your case filinhg is critical to successful discharge of taxes.

Determining dischargeability of taxes is a complicated matter.  At the risk of oversimplification one can say -- in general -- that income taxes more than three years old are dischargeable if the tax return was filed at least three years ago (if filed late) or if the return was filed early or on time and three years has elapsed since April 15th of the year the tax return was due.  Taxes for wage withholding, sales taxes, and other taxes other than income taxes are not dischargeable.  Taxes assessed in the last 240 days are not dischargeable.

Even if your taxes are not subject to discharge in a Chapter 7 bankruptcy, a Chapter 13 bankruptcy can make them manageable by eliminating future penalties and reducing future interest.  Chapter 13 will prevent IRS levies against your wages and assets.  Under Chapter 13, the amount you owe the IRS is paid in full over a three to five year bankruptcy reorganization period.  The high interest rates and penalties stop when your bankruptcy is filed.  The IRS and/or the Colorado Department of Revenue gets paid up front so that your other creditors receive what -- if anything -- is left over from your payments.  Often, this means that as much as 98 percent of your other unsecured debt is discharged (written off) in Chapter 13.