Often tax problems accompany other kinds of financial problems. Some people consider bankruptcy for taxes owed, because they simply want a fast solution that will keep threatening letters out of their mailbox. Unfortunately, using bankruptcy for taxes can sometimes make your tax problems worse. Often bankruptcy will not even cover a tax debt. This page will help you decide if using bankruptcy for taxes is the right solution.
Rules on Using Bankruptcy for Taxes
Bankruptcy is not an automatic blanket solution to all of your financial woes. Only in a few very specific situations can you use bankruptcy for taxes. First of all, only Chapter 7 and 13 can cover tax debts. Other conditions your situation must meet to use bankruptcy for taxes include:
- Your tax return due date must be at least three years before filing the petition.
- Your tax returns must have been filed at least two years before filing the petition.
- Your tax debt's final IRS assessment was at least 240 days before filing the petition.
- Your tax returns must not have been fraudulently filed.
- You must not be guilty of tax evasion.
Before you can file for Chapter 7 or 13 bankruptcy for taxes, you must make sure that the four previous tax returns are on file with the IRS. Your most recent tax return must also be brought to court. You may want multiple copies, so that your creditors can have a copy.
Reasons Not to Use Bankruptcy for Taxes
Even if you are qualified to use bankruptcy for taxes that you owe, it may not be the best decision for you. Using bankruptcy for taxes can make your tax problems much worse. Consider the following issues before deciding if you should use bankruptcy for taxes:
- It will not get rid of a tax lien and can actually prevent you from removing one.
- Your tax's expiration date will be moved forward the amount of time you are in bankruptcy.
- Your tax debt will continue to grow while you are in bankruptcy.
- The IRS often attacks with levies and garnishments as soon as bankruptcy is discharged.
It is recommended to most people who are considering using bankruptcy for taxes that they look into alternative ways to handle their financial problems. For example, entering into an installment agreement may actually prove credit-worthiness. If you have a tax debt over $10,000, it is recommended that you discuss whether using bankruptcy for taxes is the right decision with a tax debt professional.
Before you decide on using bankruptcy for taxes, consult a professional. Call (800) 590-4524 now or fill out the form below for a free tax debt consultation on using bankruptcy for taxes and your other options! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.
