Did you know that income taxes are dischargeable in bankruptcy?

Chapter 7 of the U.S. Bankruptcy Code offers rules that will allow income taxes to be completely discharged. For some of my clients, filing a Chapter 7 bankruptcy not only eliminated their tax debt entirely, but also allowed them to start over. It gave them a fresh start, freeing them from the threat of property liens and seizure; wage and bank account levies; and in Massachusetts, the revocation of their motor vehicle license.

Other clients have exercised their right to resolve their tax debt by filing a Chapter 13 bankruptcy. This chapter of the U.S. Bankruptcy Code offers rules that will allow a taxpayer to pay back their taxes within 60 months based on their ability to make monthly payments. The benefits of paying back taxes under Chapter 13 are:

  1. Prior and future penalty assessments are reduced or eliminated;
  2. Future accumulation of interest is eliminated; and
  3. Certain older tax debts which cannot be repaid are usually discharged.

Just knowing that you qualify to resolve your tax debt under either of these options may prevent you from having to file a bankruptcy in the first place.

In May, 2012, the IRS revised its Offer in Compromise procedures which has prevented thousands of bankruptcies. In many cases, the fact that you can file a Chapter 7 or Chapter 13 can provide the IRS with the just the right motivation to give serious consideration to your offer.

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