Is Bankruptcy the Solution?
If filing for bankruptcy is an option you’re thinking about to address your IRS issues, pick the type that will work best and find out how it’ll affect you and your family.
Types of Bankruptcy
Liquidation Bankruptcy: Chapter 7. The debts, dischargeable and non-exempt, are liquidated. Most or all of your income tax debts might be liquidated if they are over 3 years old. It will not affect recent taxes.
Repayment Plan Bankruptcy: Chapter 11, 12, or 13. You’re given an extended period of time to pay your debts. The taxes have to be settled by a deadline, and when that is finished, the entire tax bill would be paid in full.
Bankruptcy Disadvantages
Even when you reach the end of your bankruptcy term, you will still owe taxes. The statute of limitations is extended, so the IRS is given additional time to collect your debt, specifically the time remaining on the initial 10 years plus the time the bankruptcy case was filed plus an additional 180 days.
Also consider how your credit rating will be affected by the bankruptcy. Bankruptcy is kept on your credit record for up to 10 years and is a public record. Getting a credit card with a good interest rate or renting an apartment may be harder for you. Also, insurance and a mortgage will be hard to get. Lenders will refuse to extend you credit since bankruptcy indicates that you have difficulty in paying debts.
Another Consideration
Filing for bankruptcy will impact you and your family’s lifestyle more than other methods to solve your tax debt problem. The fact that you will have bankruptcy over your head up to ten years is enough to reconsider. On the other hand, if your IRS debts are considerable and could be discharged in bankruptcy, it may just be the option to consider.
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