In a recent interview with ABC, I revealed important facts about wiping out tax debt.
Many people put filing for bankruptcy on the back burner; however, one benefit is eliminating tax debt. Here are some things you should know about clearing tax debt through bankruptcy.
Anyone who declares bankruptcy will receive immediate relief.
As soon as you file, an automatic stay will go into effect, which stops collection activity from credits. The IRS is considered one of those creditors. They won’t be able to garnish your wages, levy your bank accounts, or file tax liens.
The IRS cannot collect on any debt that has been deemed dischargeable by the bankruptcy court. However a couple of conditions must be met before tax debt can be relieved. The tax debt must have been on income related to wages, the returns have had to have been filed, and has to be over three years old.
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Repayment of tax debts varies depending on the type of bankruptcy filed. Under Chapter 7, you’ll have to pay your tax debts that have not been discharged in bankruptcy in full. But under Chapter 13, you can get on a payment plan with the IRS for any non-dischargeable debts. These payments last between three and five years, making it easier to pay back.
I added that complications may arise if the IRS has already filed a tax lien.
A tax lien alters the status of your tax debt. It will become a secured obligation, which means that you’ll have to pay a portion, or all of the tax debt owed.
If you’re unsure which type of bankruptcy you should file due to any unpaid taxes, then the best thing to do is to contact an experienced bankruptcy attorney.
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