Taxing Bankrupts

60 Pages Posted: 10 Sep 2013 Last revised: 25 Mar 2016

See all articles by Shu-Yi Oei

Shu-Yi Oei

Boston College Law School

Date Written: November 27, 2013


When a debtor goes bankrupt and limited assets have to be divided between competing creditors, should unpaid taxes owed to the government be paid before the debts owed to other creditors? This Article defends the notion that some tax debts should be awarded priority. Insofar as bankruptcy protection transfers the risk of financial distress from a debtor to her creditors, the tax priority debate should be understood as a fight about how much debtor default risk the government should have to assume relative to other creditors. This Article argues that the government’s share of debtor default risk should be limited through the grant of tax priority because, contrary to the claims of priority’s critics, the government is constrained in its ability to diversify against such risk, via either substantive tax policy or changes in tax administration. Therefore, tax priority serves as an important structural limit on the government’s bankruptcy risk burden and safeguards the myriad important functions of government.

Keywords: taxation, tax policy, tax priority, bankruptcy, reorganizations, social insurance

JEL Classification: H20, H21, H22, H23, H24, H25, H26, H29,H41, H42, K34, E62, G33, H55

Suggested Citation

Oei, Shu-Yi, Taxing Bankrupts (November 27, 2013). 55 Boston College Law Review 375 (2014), Tulane Public Law Research Paper No. 13-16, Available at SSRN:

Shu-Yi Oei (Contact Author)

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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