Your tax debt may be eliminated by a procedure known as bankruptcy. You must think about the effects it’ll have on you and your family, though, and realize that it won’t solve all your IRS problems. This process should be taken as a last resort, but we can explore the possibilities. Click here to read or watch more IRS Help resources.
There are two basic kinds of bankruptcy: Chapter 7 (straight bankruptcy) and Chapter eleven, twelve, and 13 (repayment plans). You may liquidate your debts with Chapter seven bankruptcy. Chapter 11, 12 or thirteen bankruptcy allows you to have a payment plan, so you can settle some debts and eliminate the rest.
You have to meet these 5 conditions in order to file for bankruptcy:
- Prior to filing for bankruptcy, tax return deadline should at least be three years old.
- Before declaring bankruptcy, tax return should have been filed at least two years before.
- Tax assessment is 240 days old, minimum.
- Not fraudulent tax return.
- Not guilty of tax evasion
Some tax debts like unfiled tax returns are not good for discharge. You must have filed your last four years worth of tax returns and provide a copy of your most recent tax return to the bankruptcy court so your case can be heard. A copy may also be requested by your creditors.
You must be prepared for the long-term effects of bankruptcy on you and your family. Your credit report could be affected by bankruptcy for as long as 10 years. This would undermine your ability to obtain loans, establish new lines of credit, rent an apartment, or change employers, in some cases.
Bankruptcy is a complicated exercise and there are changes considered to improve it. Prior to filing a tax bankruptcy, confer with experienced professionals.