If you were wondering if bankruptcy is a way to resolve your tax debt, most likely, it is not. A decision to file bankruptcy should not be taken lightly as it has many negative, long term effects. There are different types of bankruptcy you may want to consider depending on your personal situation.
A liquidation bankruptcy or Chapter 7 will dissolve all your debt, dis-chargeable and non-exempt, similarly. Recent tax debt cannot be included in this, however, tax debt that is three years old or more could be mostly or all removed.
Repayment bankruptcy or Chapter 11, 12, or 13 enables you to repay the debt over a period of time. Along with your other debt, your tax debt must be repaid within the time specified.
Filing bankruptcy does have many negative elements to consider. The one to consider that applies to taxes is you can come out of the bankruptcy still facing the tax debt. This can happen because the IRS is given an extended amount of time in measurement to the bankruptcy to collect the tax debt. The remaining statute of limitations time on your debt is extended for the term your bankruptcy was pending plus one hundred-eighty days.
When you file bankruptcy is shows up on your credit report and has a negative impact. It stays there for ten years making it difficult to get any line of credit for purchasing a car, obtaining a mortgage, renting a house or apartment, getting a loan and can possible have an affect on your insurance premiums. Once you file bankruptcy, you are considered a bad risk by most creditors.
You should definitely think this over if you’re main reason for filing bankruptcy is because of tax debt. There are several options available within the IRS to resolve a tax problem. However, if you feel your tax liabilities are seriously significant and you know first hand that it will be discharged through bankruptcy, it may be the right decision for you.
Seek professional help from a tax or financial consultant before making your final decision. They can show you different options that may work for you and at the same time help avoid bad credit reports.
There is always the option to negotiate an installment plan with the IRS to pay your tax liabilities without having to file bankruptcy and the negatives affects that go with it. For this, you may want to seek the help of a tax resolution specialist.
Don’t assume that because you file bankruptcy, you will be tax debt free. That is usually not the case. The IRS has power to reacquire taxes even after the protection of your bankruptcy has expired. So think twice if you are considering bankruptcy to clear your tax debt.