It can come as a surprise when you notice how interested the bankruptcy courts and the trustee seems to be in your income tax situation. The interest mostly lies in the way that all government agencies are interconnected and share information. There are a few other reasons for the interest, however, so read on to learn more.
Do You Owe Uncle Sam?
Filing for chapter 7 – Tax debts can be crippling to those already in trouble with their finances. Unfortunately, if you presently owe money to the IRS, filing a chapter 7 bankruptcy won't help you. You have options for taking care of the tax debt, however. Check into these methods to pay your tax debts:
- Installment plans
- Offer in compromise
One common problem with owing money to the IRS is the potential for having liens placed on your property. A lien is put in place to prevent you from selling or transferring property (like real estate) until you pay the obligation. Not only can the IRS place a lien on your property, but almost any creditor that takes you to court can do so. While almost all liens placed on your assets disappear with a chapter 7 bankruptcy filing, not so with tax liens. It should be mentioned that if the IRS has not gotten around to placing the lien by the time you file for bankruptcy, they are prevented from placing that new lien. You will still owe the taxes, however.
Filing for chapter 13 – This form of consumer bankruptcy is more forgiving when it comes to owing the IRS. Since chapter 13 is a repayment plan, you can use it to pay off your tax debts. You can have them included in the repayment plan along with your other debts. Some tax debts may be eligible for partial or complete discharge. Finally, if you have previous tax liens on your property from not satisfying your tax debts, the liens are lifted with a chapter 13 filing. If a tax debt remains, there are no penalties or interest charged on the balance as long as you are under chapter 13 protection.
Bankruptcy and Tax Filing Status
If you are considering a filing, make sure that you have filed a return on the most recent tax year. Many people who are experiencing trouble with their money ask the IRS for an extension. The bankruptcy trustee, however, needs to be able to compare the information on your taxes with what you listed on your bankruptcy package paperwork. Before you file for bankruptcy, file your taxes.
Speak to a chapter 7 bankruptcy filing service to learn more about taxes.Share