In the wake of COVID-19, you may be considering filing for bankruptcy to deal with your debt. If you happen to owe the IRS money and are unsure what to do next, you have options! So, which bankruptcy chapter will help your situation?
Chapter 7
A Chapter 7 takes less time and is primarily used for those who have income tax debt, but are unable to pay anything back. This will stop the IRS collections process for a short amount of time. However, once the bankruptcy if over, they will resume. So, you should only use Chapter 7 if you have debts that qualify for discharge.
Chapter 11
This is available to every business. — whether organized as a corporation, partnership, or sole proprietorship. And, individuals as well! Chapter 11 is more of a reorganization plan. Meaning, some debts will be repaid and others won’t. The entity’s affairs will be run by a bankruptcy trustee, who balances the competing interests of creditors, including the IRS.
Chapter 13
A Chapter 13 will enable you to set up a payment plan, while eliminating a considerable amount of interest and penalties. Remember, failure to file returns and/or pay current taxes during your bankruptcy may result in your case being dismissed. And, you must continue to file during your bankruptcy — or get an extension to file at a later date — all required returns.
Should you file under Chapter 13, you will need to submit any tax return over $500 to your Trustee or speak to your attorney about amending your Plan.
Next Steps
Before you take any action, be sure that you are informed. We recommend that you take the time to meet with a qualified bankruptcy attorney. At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together we would like to get to know you and we would like you to get to know us. This is to make sure we are the perfect fit for you. We want you to feel that you can be completely comfortable sharing the details of your case with us. This allows us to offer you representation to the fullest extent of the law. Call us for a free consultation to find out the options that will work best to help eliminate your IRS tax debt.