Do you owe the IRS money? Are you unsure what to do? If so, you may be wondering how filing for bankruptcy can help. Your first step should be to make an appointment with a qualified bankruptcy attorney to hear about how bankruptcy can help your situation.

Chapter 13

 A Chapter 13 will enable you to set up a payment plan, while eliminating a fair amount of interest and penalties.

Chapter 7

A Chapter 7 takes less time. This will stop the IRS collections process for a short amount of time. However, once the bankruptcy if over, they will resume. Keep in mind, you should only use Chapter 7 if you have debts that qualify for discharge.

So, which debts can I discharge in a Chapter 7 bankruptcy?

Here are some things to keep in mind:

  • Any taxes that are not counted as income (payroll taxes or fraud penalties) cannot be eliminated through bankruptcy.
  • Filing a fraudulent tax return or purposely trying to avoid paying taxes will disqualify you from discharging the debt.
  • Your tax return will need to have been first due to be filed at least three years prior to when you file. It must be for a return that was filed by you, not a substitute return by the IRS, at least 2 years prior to your bankruptcy filing date.
  • A “240-day rule” will determine if you qualify for tax debt relief. Meaning, your income tax debt has to have been assessed by the IRS at least 240 days before you file your bankruptcy petition. Extensions are available if the IRS stops collection because of a compromise offer or another bankruptcy filing.
  • Tolling dates may be lengthened if you have been in negotiation with the IRS, or any offer and compromise period. There may be other tolling scenarios as well, so you should discuss this with your attorney prior to filing.

Can a Federal Tax Lien be Discharged?

You should know that a Chapter 7 bankruptcy will not remove your prior recorded tax liens. However, a Chapter 7 bankruptcy will keep the IRS from garnishing your wages or bank accounts. It will also remove your personal obligation to pay the debt. Did the IRS record a tax lien on your property before you filed for bankruptcy? If so, the lien will remain. Meaning, you will need to pay off the tax lien or wait for the lien to expire if you want to sell the property.

Next Steps

Before you take any action, be sure that you are informed. 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 you are the right fit for us and that we are the perfect fit for you, so that you can be completely comfortable sharing even the most intimate and difficult details of your case with us so we can 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.