Financial pressures are rapidly increasing for individuals who owe large amounts of tax and counter-tax. People often ask, does filing for bankruptcy for tax debts give you any real relief? Is bankruptcy tax exempt? Is filing chapter 7 or chapter 13 bankruptcy a better approach? In this guide, these important questions will be discussed to help give you a clearer understanding of all things related to tax debt and bankruptcy.
One of the main misconceptions is that filing for bankruptcy on taxes doesn’t work, and that taxes are never exempt. Not really. When a certain set of criteria is met, then filing for bankruptcy on tax debts is a real success, meaning you can successfully pay off those taxes.
However, in most cases, only income taxes can be waived, not other IRS tax debts such as payroll taxes, or penalties. Of course, there are always certain conditions, circumstances and so on that must be met, and in most cases, there are exceptions to the rule.
The conditions that must be met cover a wide range of issues, but most importantly there is no fraud or tax evasion involved, and that a tax return has been filed. Back taxes owed must also be at least three years old. This makes the timing of filing bankruptcy on taxes complicated for individuals, and is one of the main reasons why tax debt relief doesn’t work for many.
When the appropriate conditions are met, the tax can be waived. Even if they can’t be released under circumstances, filing for bankruptcy can still provide substantial relief The good news is, yes, bankruptcy can still help provide serious financial assistance depending on your circumstances.
For example, if you file for chapter 13 bankruptcy, taxes you don’t qualify for are paid back interest and penalty fees for 60 months. In Chapter 13, a monthly payment plan is created, giving you something more manageable, and giving you time with a realistic approach to paying off debt and getting back on track. Otherwise, by filing for chapter 7 bankruptcy, you can at least gain freedom from any other debt you may have, allowing you to more easily pay back your taxes.
Of course, it is always important to consult with an experienced bankruptcy attorney before deciding to file, or to explore other potential alternatives and viable solutions. As mentioned, there are many different conditions and circumstances that may apply, and you should carefully analyze your entire financial picture before proceeding with tax debt and filing for bankruptcy.