Chapter 7 Bankruptcy is known for its "fresh start" but there are 19 exceptions to bankruptcy discharge that are covered under a specific section of the U.S. Bankruptcy Code, known as §523 Exceptions to Discharge. Although now more than 26 years ago, I did my largest law school paper on this section, and have seen it expand again and again in those 26 years as Congress closes more and more loopholes when abuses are discovered. There are 19 types of debts currently considered non-dischargeable in Chapter 7 Bankruptcy and covered by 11 U.S.C. §523, and we'll cover each one in a separate blog post, but we'll start with: Taxes and Custom Duty.
Taxes or customs duty are not dischargeable if the following conditions are true:
1. If the tax was of the kind and for the periods specified in the list of priority claims found in §507(a)(3) or §507(a)(8), regardless of whether or not a claim for such tax was filed or allowed. A §507(a)(3) tax is an "unsecured claims allowed under §502(f)" of the Bankruptcy Code. §502(f) is in regard to "an involuntary case, a claim arising in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief shall be determined as of the date such claim arises, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arising before the date of the filing of the petition." A §507(a)(8) tax is "allowed unsecured claims of governmental units, only to the extent that such are for,
(i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;
(ii) assessed within 240 days before the date of the filing of the petition, exclusive of -
(I) any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and
(II)any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days.
(iii) other than tax of a kind specified in section 523(a)(1)(B) or 523 (a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case;
(B) a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition;
(C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;
(D) an employment tax on a wage, salary, or commission of a kind specified in paragraph (4) of this subsection earned from the debtor before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or under any extension, after three years before the date of the filing of the petition;
(E) an excise tax on--
(i) a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; or
(ii) if a return is not required, a transaction occurring during the three years immediately preceding the date of the filing of the petition;
(F) a customs duty arising out of the importation of merchandise--
(i) entered for consumption within one year before the date of the filing of the petition;
(ii) covered by an entry liquidated or reliquidated within one year before the date of the filing of the petition; or
(iii) entered for consumption within four years before the date of the filing of the petition but unliquidated on such date, if the Secretary of the Treasury certifies that failure to liquidate such entry was due to an investigation pending on such date into assessment of antidumping or countervailing duties or fraud, or if information needed for the proper appraisement or classification of such merchandise was not available to the appropriate customs officer before such date; or
(G) a penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss.
An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days."
