If you've ever declared bankruptcy, your income tax debts could be eligible for discharge under either Chapter 7 or 13 of the Bankruptcy Code. This is just one of the five ways to get out of tax debt, but you shouldn't consider bankruptcy unless you meet the specific requirements for discharging your taxes under a bankruptcy filing.
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First, you must understand the differences between the two chapters: Chapter 7 provides a full discharge of all allowable debts, while Chapter 13 provides a payment plan to repay the debts, with the remainder of debts discharged.
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Under new bankruptcy laws, tax debts are treated the same under both chapters. You must determine which petition is in your best interest to file. There are five criteria that your tax debts must meet in order to be discharged as part of a bankruptcy.
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First of all, the due date for filing a tax return should be at least three years ago. The tax return file date must be from two years ago, while the tax assessment should be at least 240 days old. The tax return has to be valid and not frivolous, and the taxpayer must be innocent of tax evasion.
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? If you determine that filing bankruptcy is not the best method for getting out of tax debt, there are some strategies you should consider that can help you.
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? Set up an installment plan with the Internal Revenue Services to repay the debt.
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? Set up a partial payment installment plan, which allows you to have a long term payment plan to pay off a reduced amount.
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? Agree on a settlement with the IRS and pay it off all at once.
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? Enroll in the IRS program where the IRS agrees to not collect on the tax debt for at least a year, labeling your debt ?not currently collectible.?
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Whatever you decide to do, remember that you can?t completely walk away from any debt scot-free. There will be payment ? but you do have options on how you wish to pay.
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