A lot of people turn to bankruptcy when they are overwhelmed with credit card debts or major amounts of medical bill debt they cannot afford to repay. Bankruptcy is extremely helpful for these two types of debts, but you might be wondering if it will help if you owe a large bill to the IRS for back taxes. There are situations in which bankruptcy can help you eliminate back taxes, but this is not always the case.
You can include it in a Chapter 13 plan
Chapter 13 is one of the common branches of bankruptcy used for debt-relief purposes, and the good news about tax debt with this branch is that you can include it in your repayment plan. This offers a way to repay the back-tax debt slowly over time, and it will prevent the IRS from making demands to you for more money.
It may qualify for a discharge in Chapter 7
If you are planning on using Chapter 7 bankruptcy instead, you will need to find out if the tax debt qualifies for a discharge before you decide to go with Chapter 7. There are times it may qualify for a discharge, but there are also times when tax debt will not qualify for a discharge. If your tax debt does not qualify for a discharge, using Chapter 7 bankruptcy would probably not offer the type of relief you need and want, which means it would be useless to use this branch.
For tax debt to qualify for a discharge through Chapter 7, it must meet several conditions. First of all, the debt must be for income taxes and must be at least three years old. Secondly, there must not be any fraud tied to the tax debt. Finally, you must be current on filing your tax returns. If you would like to know if your tax debt qualifies for a discharge, you would need to talk to a bankruptcy lawyer to find out.
A discharge does not erase liens on property
The other thing you should understand before choosing Chapter 7 for a discharge of tax debt is the effects it may have on liens. If the IRS placed a lien on your house or on any property for the tax debt you owe, the discharge you receive may wipe out the tax debt, but it will not erase the liens you have. To remove the liens, you would have to repay the tax debt in full.
Before you file for bankruptcy, make sure you understand how it will affect you and your debts. If you have questions about it, talk to a local bankruptcy lawyer or visit websites like georgettemillerlaw.com.