Many American in the midst of economic troubles, find themselves faced with extraordinary debt including debt owed to a rising number of creditors and collection agencies. This situation can go from bad to worse if one of those collector is the IRS. Declaring bankruptcy may seem like a viable option for those faced with this kind of debt, but there are some important facts you may want to consider before proceeding with a Chapter 7 or Chapter 13 bankruptcy to get rid of tax debt.
Will Bankruptcy Erase my Tax Debt?
The IRS has a number of restrictions and guidelines in places when it comes to dealing with tax debt. It is possible to eliminate or avoid paying tax debt from the IRS but there are three main stipulations in place that you will want to consider:
- First, if you tax debt is less the three years old, it will not be erased as a result of bankruptcy.
- Secondly, the IRS will not consider any debtors with unfiled and unresolved tax returns.
- Third, you cannot have committed of tax fraud or been audited for tax fraud.
Any debt outside of the previously mentioned scenarios may be dismissible by bankruptcy in certain cases, such as if you can show undue hardship, but if you are guilty of even one of those three offenses all of your tax debt will remain collectible.
First Bankruptcy Claim
If this is you first bankruptcy claim and you have proven to be an upright citizen until this point in your life, the IRS is unable to collect on your debt while you are in bankruptcy due to the Automatic Stay of Collections. Generally speaking, bankruptcy and the IRS don’t mix well together and you may still find yourself with IRS tax debt collections activities after the bankruptcy is over.
Multiple Bankruptcies
The IRS has rules set in place to assure they can collect on even the most habitual offenders. If you had a dismissed bankruptcy claim inside the past year, the IRS only has to wait one month before collecting on your debt. If you have two or more bankruptcies the Automatic Stay of Collections does not apply to you and the IRS my pursue debts owed immediately.
Getting Help
Remember, bankruptcy is a permanent mark against your financial credibility and should only be used as a last resort. Before you make such a decision, speak with an experienced bankruptcy attorney to ensure the bankruptcy will even erase the tax debt you are facing.
