The Discharging of Taxes in Bankruptcy

As you will see with some of the topics we have mentioned, in order to try and alleviate the amount owed on back taxes, arranging appropriate installment agreements or filing an Offer in Compromise can make a difference but in some cases, the IRS could deem this inadequate or inappropriate based on your individual circumstances.

What else can I do?

Bankruptcy is the one word that everyone hates but in some cases it may be the only option being able to give those who have had a “rough time” with what could easily be classed as a new start free (hopefully) from debt. If a bankruptcy is handled properly then it could help discharge some if not all of the federal and state income tax liabilities, which were the problem to begin with.

How will filing for bankruptcy affect the IRS?

If you are going to be filing for bankruptcy, this will not so much create problems but it will mean that they can longer enforce any collection procedures or further action to recover any monies due. Should there be any assets that are currently being held (due to a tax lien being served) but not yet been sold then should you have a trustee which is in line with the bankruptcy chapters above, then he/she can request that such goods are sold and funds are sent directly to the creditors.

Once a bankruptcy petition has been filed directly to the IRS then to prevent any further action being taken they will post what is known as a “bankruptcy hold” on the computer and your file.

The Difference between Secured and Unsecured Creditors?

At the end of the day even though you owe the IRS money in the eyes of the law they are just seen as another creditor, they are either a secured or unsecured creditor or sometimes a bit of both.

This may seem a contradiction of terms but if you see below, you will get an idea of how a company such the IRS can be a secured and unsecured creditor.

If a lien has been filed then it is a secured creditor and if not then it is an unsecured creditor. The IRS can be classed as both a secured and unsecured creditor if a lien has been completed and served but any amount of property owned actually ends up exceeding the equity in of the total sum outstanding.

What can be classed as priority and non-priority debts?

With any debts and including those of tax related debts, it is important that these are sorted into the biggest priority being of the utmost importance with less vital debts being put to the “bottom of the pile”. With certain taxes being extremely urgent, any other outstanding payments could possibly become made non-dischargeble.

What debts are classed as non-dischargeable?

Certain taxes can be classed as non-dischargeable if a tax return was due less than three years prior to the completion and filing of a bankruptcy petition.
They can also be non dischargeable if your bankruptcy petition has been assessed less than 240 days prior to its completion and subsequent filing with the IRS Service.

It is vital that you are aware of the rules surrounding dischargeable and non dischargeable debts as this can change in a moment’s notice should any circumstances suddenly differ so we can help advise you on how to proceed with the assortment of priority and non priority debts and starting help getting your life back on track.