Deal with Tax Debt and Bankruptcy
Bankruptcy can help taxpayers deal with tax debt either by eliminating qualifying debt or creating an affordable monthly payment to put toward what you owe. Each bankruptcy chapter has regulations
and requirements for handling tax obligations. In some cases you can get
them discharged, if they don’t qualify for elimination, having them
included in a repayment plan may be another option.
Handling tax debt can be a struggle if you have other debt obligations
such as credit card bills,
medical bills, mortgage, car loan or even a wage garnishment. Bankruptcy may help you
get in better financial shape to handle tax debt if the debt cannot be
discharged or eliminated.
Chapter 7 bankruptcy can eliminate tax debt under specific circumstances. The taxes should
be income taxes, at least 3 years old, be accessed by the IRS within 240
days of filing for bankruptcy, and your taxes should be filed and up-to-date.
As long as tax fraud or evasion isn’t committed, you may be eligible
to have the debt discharged.
Chapter 13 bankruptcy is another option if your tax debt is not eligible for elimination. This
is a 3 to 5 year repayment plan approved by the court based on your ability
to repay. At this point, the IRS has to accept your payment. This is often
an option for debtors who have been unable to set a payment arrangement
with the IRS on their own or need legal enforcement.