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I Lived It
Money Facts I Learned the Hard Way
There are some things people won't tell you — especially if they make a living and the truth could be "inconvenient" for their livelihood. This page is the stuff I wish someone had told me.
**** I am NOT a Financial Advisor. This is not advice. For informational and educational purposes only. You make your decisions! ****
Bankruptcy & Back Taxes — Not So Fast
DO YOU OWE BACK TAXES? WANT A FRESH START?? BANKRUPTCY MAY BE RIGHT FOR YOU!!!
Sounds promising, doesn't it? Life got tough. You didn't file or pay last year. Or the year before. But now you've filed, the bill is thousands of dollars — and this looks like the way out!
Once again: NOT SO FAST.
There's a rule about bankruptcies and taxes that most people — and apparently some bankruptcy attorneys — don't bother to mention. It's called the 3-2-240 Rule.
The 3-2-240 Rule
For income tax debt to be discharged in bankruptcy, ALL THREE conditions must be met:
- The tax return for the debt must have been due at least three years before your bankruptcy filing (including extensions).
- The tax return must have actually been filed at least two years prior to bankruptcy. Returns filed by the IRS on your behalf don't count.
- The IRS must have assessed the tax debt at least 240 days before bankruptcy. If there was an audit or a dispute, this window is sometimes longer.
In addition, the debt must be for income taxes (not payroll or fraud-related taxes), and you must not have committed fraud or willfully evaded tax laws.
❌ What Bankruptcy CANNOT Cover
The following conditions will prevent tax debt from being discharged — even if you go through the entire bankruptcy process:
- Payroll or fraud penalty taxes — These cannot be eliminated in bankruptcy.
- Fraudulent returns or willful evasion — If you filed a fraudulent return or used a false Social Security number, bankruptcy won't help.
- Debts less than 3 years old — The tax return must have been originally due at least three years before filing.
- Tax liens — Even when all discharge criteria are met, a recorded IRS tax lien survives bankruptcy and must be paid before you can transfer title to your property.
Guess who wasn't told about this rule? Me.
My bankruptcy attorney didn't say a word. I had to go through 5 years of bankruptcy — AND STILL HAD TO PAY THE MONEY. So now you know. I wish I had.
Bankruptcy Follows You — Forever
Another not-so-well-known fact: bankruptcy follows you forever. Oh, you heard it gets removed after a certain period — say 7 years — from your credit report? Well, here's precisely what that means:
| Bankruptcy Type |
Stays on Credit Report |
| Chapter 7 (Liquidation) |
10 years from filing date |
| Chapter 13 (Repayment Plan) |
7 years from filing date |
| Chapter 11 (Reorganization) |
10 years from filing date |
⚠️ Important: The Clock Starts at Filing, Not Discharge.
The years don't start counting from when your case closes — they start from when you filed.
📋 Two Very Different Things: Credit Report vs. Legal Disclosure
So why did I say bankruptcy follows you forever? Here's the part that catches people off guard:
Don't some creditors ask if you've ever filed for bankruptcy — and if you lie, it's a crime? Even if it's 20 years after discharge?
Yes. That is exactly correct. Once a bankruptcy is removed from your credit report, your loan eligibility will depend on your current credit history, score, and income. However, lenders may still ask about past bankruptcies — and you must answer truthfully, no matter how long ago it was.
This applies even 20, 30, or 40 years later. The removal from your credit report does not erase the legal fact that it happened.
The Crime of Lying on a Credit Application
- Federal law (18 U.S.C. § 1014) makes it a federal crime to knowingly make a false statement on a loan or credit application to a federally insured institution. Penalties can include up to 30 years in prison and fines up to $1 million.
- Bankruptcy fraud (18 U.S.C. § 157) is also a separate federal crime.
- Many credit and loan applications contain language stating the information is provided "under penalty of perjury" — making a lie potentially prosecutable.
| Situation |
The Rule |
| After 7–10 years |
Bankruptcy drops off your credit report automatically |
| If a creditor directly asks if you've ever filed |
You must answer truthfully — no matter how long ago |
| Lying on a credit application |
Can be a federal crime, regardless of when the bankruptcy occurred |
So now you know the ugly truth not covered by some bankruptcy attorneys.
The passage of time and removal from a credit report does not give you legal permission to deny it ever happened when directly and specifically asked. Honesty is always the required — and safest — approach.
I wish I had known.
More to Come
This section will keep growing — more money facts I lived through and learned the hard way. Check back.
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Life Matters Faith • I Lived It • Updated 2026