Owing the IRS & Bankruptcy
Debating whether or not to file for bankruptcy requires a consideration of a number of important issues. Chief amongst these matters is outlining the types of debt you possess and what impact bankruptcy will have on these obligations. Not all debts are treated the same in bankruptcy proceedings, according to the provisions of the U.S. Bankruptcy Code. For example, if you maintain a past due tax balance with the Internal Revenue Service (IRS), you need to understand how this obligation is handled in a bankruptcy proceeding.
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Types
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As a consumer, you must choose from one of two types of bankruptcy cases. A Chapter 7 bankruptcy permits you to obtain a discharge of most if not all of your obligations to certain creditors. Your IRS debt is not subject to discharge in a Chapter 7 bankruptcy, and you will remain responsible for past due taxes. A Chapter 13 bankruptcy includes the development of a repayment plan. You satisfy your obligations to most if not all of your creditors by making payments into the court. These payments are divided among your individual creditors. An IRS debt likely will not be included in the Chapter 13 plan, and you will continue to deal with the agency directly.
Misconceptions
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The most common misconception associated with either type of consumer bankruptcy is that you can be relieved of your obligation for taxes owed to the IRS. Although not many non-dischargeable debts exist, you simply cannot obtain relief in bankruptcy for most types of tax-related obligations, including money owed to the IRS.
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Effects
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The effects of filing for bankruptcy when saddled with IRS debt include ending up being relieved of most other obligations but still having to resolve what you owe in the way of taxes. Depending on the amount you owe to other creditors, obtaining relief regarding these debts through bankruptcy may leave you in a better position to deal with the IRS.
Warning
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Although you cannot obtain relief for taxes owed to the IRS through bankruptcy, you must disclose the debt in your bankruptcy petition and related schedules. If you fail to disclose this or any other obligation, you run the risk of facing an allegation of fraud. At a minimum, your case likely will be dismissed, with an order of the court prohibiting you from re-filing within a specific period of time.
Expert Assistance
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Bankruptcy and tax-related issues represent complex legal matters. Seriously consider retaining the services of an attorney to represent your rights and interests in such a situation. State as well as local bar associations maintain directories of attorneys for use by consumers seeking legal representation. Contact information for these organizations is available through the American Bar Association:
American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org
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References
Resources
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