Can Bankruptcy Be A Good Way To Deal With Tax Debt?Share
Having the IRS on your back for taxes you owe can be a nightmare, but there isn't always an easy way to settle a tax debt. This is why a lot of people turn to bankruptcy for help. Both branches of bankruptcy can help with tax debt; but before you file, you will need to find out whether the tax debt will be considered a priority debt or a nonpriority debt. This will help you determine which branch to choose to help you stop the IRS from coming after you.
What is the difference?
The first thing to understand is what the difference is between a priority debt and a nonpriority debt. In bankruptcy, priority debts are bills you owe that you have to pay in full no matter what; they cannot be discharged in either branch.
Nonpriority debts, on the other hand, are debts that can be discharged in some cases. In Chapter 7 bankruptcy cases, nonpriority debts will typically be discharged in full. In Chapter 13, you may have to pay between 0% to 100% of the debt, but the debt will be divided up for a three to five year period of time. During this time, the IRS will not be able to hound you for the money you owe.
How are tax debts classified?
Tax debts can be classified as priority debts or nonpriority debts; however, they are classified as priority debts most of the time. In general, a tax debt will be classified as a priority debt unless it meets certain conditions, and there are several different ones. One condition involves the age of the debt. If the debt is three years old, it may fall into the category of a nonpriority debt.
Before you choose either type of bankruptcy, you will need to discuss this issue with a bankruptcy lawyer. He or she can examine the tax debt you have to determine which way it would be classified, and this can help you make your decision about using bankruptcy as a way to clear up the debt.
Are there other factors to consider before filing for bankruptcy?
If this tax debt is the only debt you owe, filing for bankruptcy might not be the best route to take. Instead, your lawyer might be able to work out a payment arrangement with the IRS for you, and this could even involve settling the debt for a lower amount. If you have a lot of other debts that would qualify for a discharge, then using bankruptcy might be good route to take.
If you are tired of having creditors call you for money you owe, contact Hornthal Riley Ellis & Maland LLP or another bankruptcy attorney in your area. This could be the start of a fresh start for your life.