Thursday, 12 July 2012

Bankruptcy and Tax Debt

Taxes can be a tricky subject and many people simply ignore them most of the year and only pay attention come tax time. Although no one sets out to owe the IRS money, it does happen to many people. Tax debts are particularly difficult to manage, especially if you are experiencing financial trouble or are considering filing for bankruptcy.

While most people assume tax debts are not dischargeable in bankruptcy, the fact is that some are eligible for bankruptcy help. The general rule of thumb is that payroll taxes, trust fund taxes, tax penalty fees, and taxes that are accumulated due to fraud are not eligible for bankruptcy. However, income taxes can be managed in bankruptcy in most cases.

Qualification Standards

There are several rules and conditions that apply when considering whether a debt will qualify for bankruptcy discharge. The specific criteria set by the bankruptcy code defines which debts will be eligible. First, the taxes must be tied to a current and filed tax return. Any tax debts that have not been filed with the IRS will not qualify for discharge. The taxes must have been assessed by the IRS at least 240 days before the bankruptcy filing. Next, the debts must be at least three years old. Finally, the taxes must not be considered to be fraudulent or have any attempt to evade payment.

Bankruptcy Cases

While tax debts can be discharged under either a Chapter 7 or Chapter 13 case, a debtor's income will better determine which case they qualify to file. Whenever possible, debtor's are encouraged to repay their debts under structured payment plan through Chapter 13. However, if a debtor cannot afford to repay their total tax debt liability, they may be able to have some or all of the debts eliminated through Chapter 7.

Other Options

Managing tax debts outside of bankruptcy is highly encouraged. Luckily, the IRS offers taxpayers two ways to resolve their tax debts directly. The IRS installment plan allows for the taxpayer to repay their liabilities over a series of small increments. Generally, this plan breaks down payments over the course of two to three years. Requesting an installment plan is fairly simple and most people are pleasantly surprised to learn the IRS is willing to negotiate. A tax debt settlement option is also available for those who cannot afford to repay in full. An Offer In Compromise is a proposed settlement that is presented to the IRS, in which they agree to accept less than the full amount owed. This program is harder to come by and is generally reserved for those with serious financial hardships.

For more information please visit The Lee Law Firm aims to help local residents resolve their debt issues and achieve a financially healthy future. They provide high quality legal representation that helps lower monthly debt payments, stop wage garnishment, prevent foreclosures and repossessions, and stop calls from creditors. The Lee Law Firm bankruptcy lawyer in Fort Worth have many years of experience in all aspects of Chapter 7 and Chapter 13 Bankruptcy.

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