Filing Bankruptcy to Stop the IRS
If you have past due federal taxes and the IRS has begun the collection process, filing for bankruptcy may be a viable option. If you decide to pursue bankruptcy to settle your tax debt, several steps must first be taken.
- You you should file all required tax returns for tax periods ending within four years of your bankruptcy filing.
- While your bankruptcy is underway:
- You must continue to file all necessary returns.
- You need to pay all current taxes as they are due.
Not all tax debts are dischargeable through bankruptcy. Older income tax obligations with a return due within the past three years are more likely to be discharged. A Chapter 7 bankruptcy wipes out your dischargeable tax debts, with the exception of priority taxes. If you owe priority taxes Chapter 7 bankruptcy will only provide you with temporary relief from IRS collectors while the automatic stay is in effect.
Chapter 13 bankruptcy affords you the opportunity to pay off your priority tax debts through your repayment plan, between three to five years. As you continue to make payments, your automatic stay will prohibit the IRS from collecting the tax debt outside of bankruptcy.
Failure to file necessary returns or pay your current taxes may result in your bankruptcy case being dismissed.
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