Yes, the bankruptcy law can be hard on a debtor who owes Uncle Sam taxes. But did you know that it may be possible for you to discharge some taxes during bankruptcy and/or repay taxes under a Chapter 13 repayment plan? The first thing every debtor needs to know is that you MUST file income tax returns, even if you owe money and can’t repay the tax debt immediately.
The bankruptcy law may allow a debtor to discharge tax debt that is older than 3 years during a Chapter 7 bankruptcy . Even if a debtor is not able to discharge taxes during bankruptcy they can often negotiate a “settlement” that allows the debtor to repay a lump sum figure that is significantly less than the original tax debt owed.
If your taxes are making it difficult to pay for basics such as housing, food and transportation you may be able to setup a repayment plan during a Chapter 13 bankruptcy that is reasonable and within your financial means. Whatever you do, do not ignore tax debt. Tax collectors have an incredible amount of power to seize bank accounts, wages and other assets with little or no notice beforehand. No matter how large your tax debt is or how delinquent you are in repaying them, speak with a bankruptcy attorney to find out how you can get control of your tax problem using bankruptcy.