If you owe the state or the IRS back taxes, it is highly likely that these agencies will attempt to recover the money through liens and levies. Fortunately, debtors may have the ability to minimize these collection actions through bankruptcy. Here is a look at why it may be helpful to file for bankruptcy for tax reasons.
Tax Liens
If you have not paid your taxes or filed your tax returns for a number of years, the IRS may try to collect the debt. They can do this by placing a lien on your property. This legal term means that the government places a formal claim against all of your possessions and commits to preventing you from selling your assets before first paying off the IRS.
Tax Levies
Relatedly, a levy is a formal government decision to seize property in order to satisfy a debt. If you own your home, the IRS may exercise its legal authority to sell the home in order to pay off your debt. Similarly, the government may levy your wages so that the IRS receives a portion of every paycheck until the taxes are paid off. Both Chapter 7 and Chapter 13 bankruptcies may allow you to discharge these back-owed taxes and start life anew.
The Automatic Stay
If your tax issues result in levies, it is important to remember that an automatic stay effectively pauses any collection actions by the IRS on the day that you file a bankruptcy petition. This can be useful if you anticipate being unable to pay the tax before the statute of limitations runs out. Consult a local bankruptcy attorney to see how to best use the Chapter 7 or Chapter 13 process to lower or eliminate debt owed to the IRS.
The office of Cutler & Associates can help Illinois residents assess the possibility of discharging their tax debts during bankruptcy. Regardless of whether you file for Chapter 7 or Chapter 13, the automatic stay can help you suspend all adverse actions and potentially get rid of your debt once and for all.