Are you worried about an IRS tax debt that you owe but cannot repay? If so, are you also considering bankruptcy as a way out of your debt problems? Bankruptcy can help you with a lot of debt issues, and it sometimes helps with IRS tax debt. If you want to find out how bankruptcy helps with tax debt, continue reading to learn more about bankruptcy and its effects on IRS tax debt.
How Tax Debt Works in a Chapter 7 Case
Chapter 7 is the branch of bankruptcy that eliminates debts from your name. If you qualify for Chapter 7 and decide to file for it, you can instantly get rid of debts you owe. The primary debts that Chapter 7 eliminates include medical bills, personal loans, and credit card debts, but other debts might also qualify. When it comes to tax debt, it only qualifies if the debt meets certain conditions.
A lawyer can explain the conditions to you more thoroughly, but one of them is that the debt must be at least three years old. Another requirement is that you must be current on your tax filings. Additionally, the IRS has other conditions that you must also meet. IRS tax debt typically does not qualify for a discharge in Chapter 7 cases, but sometimes it does. You can find out more about this by talking to your bankruptcy law attorney.
How Tax Debt Works in a Chapter 13 Case
Chapter 13 bankruptcy is a completely different type of bankruptcy, and it almost always provides a solution for back taxes. The solution is different through this branch than through Chapter 7, though. Through Chapter 13, you create a repayment plan for your past-due debts. You can include your back taxes in this repayment plan. Over the next three to five years, you will make payments to a bankruptcy court for your debts. These payments go to a bankruptcy trustee, and the trustee pays your creditors. If you owe back taxes, you can include these taxes in your plan. Over time, you will pay them off. At the end of the program, you will hopefully pay off the IRS in full.
These are the differences in how the two primary branches of bankruptcy treat tax debt. If you have tax debt and other debt, you could consider bankruptcy. Bankruptcy might provide a solution for this problem, but you should talk to a lawyer before deciding.