Bankruptcy For Tax Debt

December 28, 2009 by  Filed under: Bankruptcy 

Bankruptcy is well known to have been used by people that cannot pay their debts to commercial organisations. What a lot of people don’t realize is that bankruptcy can also be used against government organisations. The major revenue department of the U.S. government is the IRS and there are a lot tax payers that find it hard to cover their tax liabilities. One possible option is to file for bankruptcy on your tax debt.

There are two chapters that maybe used for bankruptcy, Chapter 13 and Chapter 7. Chapter 13 is called a reorganization bankruptcy which basically allows you a period of 3 to 5 years to get your financial affairs in order, whilst paying back a reduced amount of outstanding tax during this period. Usually any outstanding tax will incur interest payment penalties. The tax payments will not be reduced if the IRS has already issued a tax lien prior to your bankruptcy. This is because a tax lien becomes a secured debt. Chapter 7 is called a liquidation bankruptcy and can be used for debt that is over 3 years old. Filing a chapter 7 will remove your tax debt if the IRS has not issued a tax lien on you prior to you filing chapter 7. If the IRS have issued a tax lien to you, then the tax debt is held until you have removed yourself from chapter 7, when it will then become payable. You must plan out your financial obligations post chapter 7, before removing yourself from bankruptcy.

Some people have followed a different path by paying a $150 application fee to the IRS and lodging a Form 656; Offer in Compromise (OIC). A OIC is where the IRS and yourself come to an agreement where you will pay only a small percentage of the outstanding tax. This is done at the discretion of the IRS and will require you to provide a lot of financial information to the IRS, some you may not want the IRS to know about.
You need to engage with suitable qualified attorney to ensure that you have all the right advice you need to make a decision.

Tom has been writing for many years now. Not only does this author specialize in financial matters, you can also check out his latest web site at which reviews and lists the best Braun PowerMax MX2050 blenders for your kitchen.

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