Bankruptcy and Tax debt – How is it handled in Bankruptcy?
If you have overwhelming debt and overdue taxes, you may be considering bankruptcy to eliminate all the debt. You may be discouraged to learn that most taxes cannot be discharged in bankruptcy.
If you fail to pay your taxes to the Internal Revenue Service they will not just go away. The IRS will continue to contact you and eventually take action to collect the debt.
After sending you a series of letters asking for payment. You will be allowed some time to dispute the amount owed or set up a payment plan. If you do not set up an agreement with the IRS, arrange a payment plan or offer in compromise, the IRS will force payment from you.
If you do not respond to the IRS, the government can go after your bank accounts, paychecks and then your home. The IRS also can levy your Federal wages and benefits, including Social Security. Another option they may take is to place a tax lien on your property as security for the taxes you owe. The lien also allows the IRS to seize any of your property. However, specific exempt property and types of income can not be taken from you.
If you file Chapter 13 bankruptcy, you can pay your full tax debt over the span of three to five years, however long your court-approved repayment plan is.
If you are more than three years delinquent on your taxes, you may be able to discharge the debt in Chapter 7 bankruptcy, although certain conditions must be met.
1. The due date on the return is at least 3 years old before filing bankruptcy
2. You aren’t guilty of tax fraud
3. The IRS assessment is at least 240 days old
Even if you are unable to eliminate your tax debt in bankruptcy, having all over qualifying debt discharged can free up money to make the tax payments.
If you have more questions about tax debt and bankruptcy, contact a Cincinnati bankruptcy attorney to find out what options you may have.