IRS Tax Bankruptcy Laws

March 1, 2011 by  Filed under: Taxes 

The IRS Tax Bankruptcy Laws have changed since 2006 to help tax payers who are unable to meet or make their tax commitments. The IRS frowns upon letting you claim your taxes in bankruptcy. They prefer to have you pay what is owed the government. However, they do realize that for some people it is sometimes difficult to pay their taxes. That is why unpaid IRS taxes have become a matter of concern to many law makers who see tax payers meet their tax obligations and avoid IRS tax bankruptcy.

Chapter 7 Tax Bankruptcy Law

If you file for Chapter 7 bankruptcy and are approved, you are more inclined to get all your taxes forgiven. This bankruptcy law is now much harder to file and it is not easily approved by the courts. This bankruptcy law is usually reserved for individuals who can prove absolute poverty. Most people who file Chapter 7 usually have lost their home and have no visible means of support. This helps to wipe the slate clean so a person can start all over again with a clean slate.

Chapter 13 Tax Bankruptcy Law

The laws for filing a claim of Chapter 13 bankruptcy have recently changed for the tax payer. You will usually be held accountable for your taxes, but a tax payment plan will be implemented. Tax agents will probably forgive your past penalties and fines. In some cases they may even lower the amount of taxes that you actually owe the government. The interest on your payment plan will be a lot less than an average loan. Some people have paid interests rates as low as 2%. This bankruptcy law always takes in account of your circumstances.


In 2006, a new bankruptcy law called the Offer-in-Compromise law was passed. It gives tax agents the authority to work with the tax payer to help them come to a workable settlement between the tax payer and the government. Your unpaid taxes will be lowered and a lot of the fines will also be dropped. This arrangement at least helps the tax payer get out from under huge amount of debts. The IRS compromise has worked well with most tax payers. They have found that it is better than trying to declare bankruptcy.

IRS Payment Plan

When you ask for a tax agreement, the IRS will set up a payment plan that you must abide by. If you fail to do so, you will be heavily fined and could face jail time. The tax agreement is usually a payment plan that should be well within your means. The Offer-in-Compromise program gives the tax payer three options when it comes to making their payments. The first IRS payment Plan is to pay the whole amount that you owe within thirty days, although it does require a down payment of 20%. The next option is to pay the whole amount at the time your debt is determined. The last IRS tax bankruptcy law option gives you up to twenty four months to get your taxes paid.

J. Stefan is a senior paralegal and supports two IRS tax attorneys at the Dallas office of Allmand and Lee. She assists counselors who represent individuals with IRS tax problems and aids in their issues being addressed until they are solved. Josie has over 15 years experience and shares common problems and resolutions individuals face on her IRS Debts Secrets blog daily.

For more information and tips on how to avoid IRS tax bankruptcy, visit IRS Debts Secrets now. Allmand and Lee are Dallas and Fort Worth Bankruptcy Attorneys who fight the IRS on behalf of many Americans, negotiating on their behalf to minimize unpaid taxes and tax penalties. Visit the site today to find answers on how to manage your tax troubles.

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