Will Bankruptcy Solve my IRS Tax Debt Problems?
By: Chintamani | Posted: 23rd November 2009
The answer to that question is - most likely, not. First of all, bankruptcy is a very serious thing and you must not enter into the decision to file bankruptcy lightly. Bankruptcy has long-term negative impacts. There are two types of bankruptcies for you to consider before deciding which might be right for your circumstances.
Chapter 7 is liquidation bankruptcy. Under this arrangement, all your debt is liquidated, non-exempt and dischargeable, alike. Income Tax debt over three years old could be all or mostly erased. More recent tax debt cannot be included.
Chapter 11, 12, or 13 is repayment bankruptcy. Under this arrangement you are able to repay your debt during a lengthened amount of time. Your taxes must be repaid within a specific amount of time, just like the rest of your debt.
There are many negative aspects of bankruptcy. The negative aspect of bankruptcy which applies to taxes is that you can come out of your bankruptcy and still face those tax debts. This is because the law allows for the Internal Revenue Service to be given extra time to collect your debt in proportion to your bankruptcy. The remaining statute of limitations time on your debt is extended for the term your bankruptcy was pending plus one hundred-eighty days.
Bankruptcy will have a gravely negative impact on your credit rating. A bankruptcy filing remains on your records for ten years. This will make it harder for you to buy a car, rent an apartment, receive a loan, or mortgage, and even affect your insurance premiums. Lenders will consider you a bad risk and refuse to extend credit to you.
If the major reason you are considering bankruptcy is due to tax debt, reconsider. You can usually work out a plan with the Internal Revenue Service to repay your debt over time. On the other hand, if your tax debt is substantial and you are certain it will be discharged in bankruptcy, it might be the right the thing to do.
Before making considerations like this, it is always good to consult a tax professional or financial consultant. They can steer you toward options that really work, while helping you to avoid the stigma of bad credit and substantial tax liability.
You may also want to consider the option of a tax resolution specialist to help you with your IRS tax debt. Often, a tax resolution specialist can help you negotiate an installment plan to pay your Internal Revenue Service debt without the negative connotations of bankruptcy.
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Tags: amount of time, negative aspects, credit rating, extra time, negative impact, bankruptcy filing, negative aspect, insurance premiums, chapter 11, liquidation, serious thing, income tax, internal revenue service, statute of limitations, chapter 7, tax debt, tax debts