IRS & Bankruptcy
One common question bankruptcy filers often have is how their tax debts will be treated by the bankruptcy court. If you're worried about the amount of tax debt you have or have had to deal with the stress of debt collectors calling at all hours, you've no doubt considered filing for bankruptcy protection.
You can speak with a bankruptcy attorney about your options in bankruptcy. Simply fill out the form below to arrange a free, no-obligation consultation with a bankruptcy attorney today.
Tax Debt in Bankruptcy
The way your tax debts will be treated in your bankruptcy case depends on many factors, including the type of taxes you owe, whether or not you filed your tax returns properly and what kind of bankruptcy you choose to file. Here's a look at some factors that can affect what happens to your debts to the IRS in bankruptcy.
- Collection attempts and the automatic stay: When you file for bankruptcy, a legal protection called the automatic stay takes effect immediately and halts all collection actions on the debts included in your bankruptcy filing on the part of your creditors. In this case, the IRS will likely be treated like any other creditor and cannot continue to attempt to collect on your tax debt while your bankruptcy case is pending.
- Income tax debts older than three years: While the specifics depend on your situation, a general rule of thumb is that if you have unsecured income tax debts more than three years old, you may qualify for a discharge if you filed a non-fraudulent tax return at the time they were due.
- Cutting deals with the IRS: In some cases, a bankruptcy filer may be able to make alternative payment arrangements with the IRS. For some debtors, this might mean setting up an installment payment plan (which would allow you to make gradual payments until you’ve covered the full amount you owe). In rarer cases, some filers may qualify for an Offer in Compromise with the IRS (which would allow you to settle your tax debt for less than the total amount you owe).
Non-Dischargeable Tax Debts in Bankruptcy
There are certain types of tax debts that cannot be discharged in bankruptcy court (that is, the bankruptcy court has no power to excuse you from paying these debts). Here's how your tax debts might work in the two types of personal bankruptcy.
- Chapter 13 bankruptcy: The IRS would likely be just another creditor you repay as part of your three- to five-year repayment plan. In other words, when you make your monthly payment to your bankruptcy trustee, some of that money would go to the Internal Revenue Service to cover your delinquent or overdue tax debts. Keep in mind, though, that you'll also be responsible for keeping up with any taxes that come due during the repayment period.
- Chapter 7 bankruptcy: If your tax debts are non-dischargeable and you file for Chapter 7, you will possibly have some of your other debts, such as credit card debt, discharged. Because you will no longer be responsible for repaying these debts, more of your money will be made available to pay the debts you still owe (which may include support payments, legal fines, taxes and student loans).
Learn about Your Tax Debt With Help from a Lawyer
To find out how the money you owe the IRS may be affected by filing for bankruptcy, take this opportunity to speak with a bankruptcy lawyer practicing near you. Simply fill out the case review form on this page to get started.
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