In certain situations, filing for bankruptcy can solve both your consumer and tax debt in one fell swoop. The process can dissipate many—if not most—of your tax problems along with any other unsecured debts owed to private companies. However, it takes an experienced attorney to explain to you how this process will impact your taxes and credit card debt. These are two ways in which declaring bankruptcy can help relieve your tax burden:
You may discharge taxes during bankruptcy. This applies to both personal and business income taxes, but the totality of your discharge depends on timing and your unique financial situation. Certain older taxes may be wiped away entirely, while other newer bills may come due right after a judge signs off on your discharge. The reason for this is that the IRS has 10 years to collect any taxes owed to them. If your taxes are from just under a decade ago, a three-to-six month Chapter 7 proceeding may stall the IRS long enough to wipe the taxes away.
More Breathing Room
One of the most immediate benefits of filing for Chapter 7 or Chapter 13 is the automatic stay. This prevents creditors from trying to collect debts during your bankruptcy process. Fortunately for you, this provision also applies to the IRS. When submitting your bankruptcy petition, you are effectively pausing the ability to pay back taxes to the IRS. The federal agency must subsequently wait until the resolution of your bankruptcy proceeding before approaching you for these debts. Since a judge can lower or write-off these debts in bankruptcy, you may emerge from the process free of both consumer and tax debt.
Illinois residents who need answers to their complex tax questions should consult the skilled legal team at Cutler & Associates.