Understanding the Interplay Between Bankruptcy and IRS Tax Debt
When someone reaches a point where they are bogged down with so much debt, including IRS tax debt, that they can barely afford making minimum payments to service the debt, it may be time to consider filing for bankruptcy. If you are in this position, you may be wondering whether filing for bankruptcy will enable to erase your back taxes and achieve tax debt relief. Let’s discuss.
What Exactly is Bankruptcy?
Bankruptcy is a legal proceeding that enables individuals, businesses, and organizations to discharge certain debts and/or reorganize debts in a way to make monthly payments more reasonable. The discharge of tax debt or payment towards a consolidated amount of debt would be achieved with the help of a court-appointed trustee.
It is important to note that there are multiple types of bankruptcy. Specifically, there are “chapters” of bankruptcy in which someone can file depending on their circumstances. It is extremely important to sit down with an experienced tax debt professional to discuss your options and gain insight into how tax debt relief can be maximized through bankruptcy.
Different Types of Bankruptcy
There are two types of bankruptcy that allow for the discharging or repaying of back taxes – Chapter 7 and Chapter 13.
If you file for Chapter 7 bankruptcy, any non-exempt assets you possesswould be liquidated (i.e. sold for money) and any remaining IRS taxes owed would be discharged, unless you fail to meet certain qualifications. If you do not meet the specific qualifications, then your IRS tax debtwould need to be repaid after the bankruptcy proceedings conclude.
It is also important to note that if your tax debt is recent (i.e., accrued within the past three years), then it likely cannot be discharged via Chapter 7 bankruptcy.
Chapter 13 bankruptcy is the route most commonly taken for someone burdened with a significant amount of IRS tax debt. When you file for Chapter 13 bankruptcy, a portion of the tax debt can be forgiven while the remaining portion would need to be repaid via a payment plan. The reason many people opt for Chapter 13 bankruptcy is because, in most instances, personal assets do not need to be liquidated since your income will be the focal point to finance the payment plan.
It is important to note that there are some negative repercussions associated with bankruptcy. For example, a bankruptcy filing can cause a significant drop in your credit score. In addition, the bankruptcy filing will remain on your credit report for years going forward.
To Learn More about Bankruptcy Proceedings and Obtaining Tax Debt Relief? Contact Anderson Bradshaw Today
If you are struggling with a significant amount of tax debt, credit debt, and other debt, then it is in your best interest to consider filing for bankruptcy. Our law firm, Anderson Bradshaw, is comprised of skilled and experienced tax professionals and consultants that can help you through your unique tax situation, including ways to secure tax debt relief. With over three decades of experience in the industry, we have seen many different tax issues and have learned the best ways to handle them based on our clients’ unique situation. For further information or to schedule a free 30-minute Tax Consultation contact Anderson Bradshaw today at 877-550-3911 to or fill out this form to receive a complimentary Tax Evaluation.