Eliminating Tax Debt through Bankruptcy

Many people think that tax debt cannot be eliminated through bankruptcy. This is not entirely true. In some cases, you may be allowed to pay off your tax debt at a rate you can afford every month. This is beneficial to you because it gets the IRS off your back and you will not have to face wage garnishment, asset levies, property liens and other forms of nasty IRS collection efforts.

There are two types of bankruptcies you may file for namely Chapter 7 and Chapter 13 bankruptcy (named according to the chapters of the Bankruptcy Code). So under certain specific circumstances, your tax debt can be discharged or paid off by these two types of bankruptcy.

If you file a Chapter 7 bankruptcy, your tax debt is eligible for discharge if it is at least 3 years old, be accessed by the IRS within 240 days of filing for bankruptcy and are personal income taxes. You should also ensure that you are current with your tax filing. Under such circumstances, as long as tax fraud or evasion isn’t committed, you may be eligible to have the debt discharged.

If your case does not fit into the circumstances described above, you should file under Chapter 13 bankruptcy. In this case, your tax debt will be added to your other debts and a payment plan will be drawn up to clear all your debts (tax debt included) over a period of 3 to 5 years. During this period, you will have to be very austere with how you spend your money as the bankruptcy court will not allow you to have any luxuries, only enough for basic needs until all your debts are paid off. As long as you keep up with the repayment every month, the IRS will not hound you for money.

So if you have not been able to agree on a payment arrangement with the IRS on your own then you should file a chapter 13 bankruptcy petition. Once the amount of payment is set by the bankruptcy court, the IRS is obligated to accept the payment.
For more information and a free consultation on bankruptcy, call us at (813) 200 4133.

 

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