Navigating IRS Income Tax Debt: Is Bankruptcy a Viable Solution?

Written By: Emil FleysherOctober 19, 2023
Navigating IRS income tax debt

Dealing with IRS income tax debt can be a nerve-wracking experience, leaving you feeling overwhelmed and uncertain about the best course of action. While there are various strategies for addressing tax debt, bankruptcy is a powerful tool that can provide significant relief to individuals struggling with their tax obligations.

In this blog post, we'll explore the options for dealing with IRS income tax debt and discuss why bankruptcy might be beneficial in certain circumstances.

1. Assess Your IRS Income Tax Debt

Before diving into potential solutions, it's crucial to assess the extent of your IRS income tax debt. Review your tax returns, notices from the IRS, and any outstanding balances. Understanding the nature and amount of your tax debt will help you determine the most appropriate course of action. If you don't have this information available, you can order transcripts of your tax returns online at https://www.irs.gov/individuals/get-transcript.

2. Negotiate with the IRS

In some cases, it may be possible to negotiate with the IRS to establish a payment plan or settle your tax debt for less than the total amount owed. The IRS offers options like:

  • Installment Agreements: You can request a monthly payment plan to spread out your tax debt over time.
  • Offer in Compromise: Under certain circumstances, the IRS may accept a reduced lump-sum payment to settle your debt.

3. Seek Professional Tax Help

Seek professional tax help

Consider enlisting the assistance of a tax expert, like a tax attorney or enrolled agent, who specializes in dealing with the IRS. They can help you navigate negotiations, resolve disputes, and explore available tax relief options.

4. Explore the Role of Bankruptcy

When dealing with IRS income tax debt, bankruptcy can be a viable option. Here are two bankruptcy chapters that may provide relief:

A. Chapter 7 Bankruptcy:

  • Discharge of Income Tax Debt: In some situations, Chapter 7 bankruptcy can end in the discharge of qualifying income tax debt. To be eligible for discharge, tax debt must meet specific criteria, including the age of the debt and timely filed tax returns.
  • Fresh Financial Start: Chapter 7 bankruptcy can provide a fresh start by eliminating unsecured debts that meet the discharge requirements, including income tax debt.

B. Chapter 13 Bankruptcy:

  • Discharge of Debt with Certainty: Like with Chapter 7 bankruptcy, Chapter 13 can result in a discharge of your income tax debt if it meets certain requirements. One great benefit in Chapter 13 that is not available in Chapter 7 is the IRS requirement to file a Proof of Claim. This Proof of Claim is an itemized list of the debt and includes what portions the IRS has already calculated can be discharged and what amount must be repaid in the plan. If your tax debt is dischargeable, your Chapter 13 case will include a court order stating so. In Chapter 7 bankruptcy, you may file your claim and only find out that the tax debt was not dischargeable for some reason. If that happens, you don't get another chance at a discharge for eight years.
  • Structured Repayment Plan: Chapter 13 bankruptcy involves creating a structured repayment plan to pay off debts over three to five years.
  • Tax Debt Repayment: You can include IRS income tax debt in your Chapter 13 repayment plan, making it more manageable while protecting valuable assets like your home or car.
  • Prevent IRS Collection Actions: Filing for Chapter 13 bankruptcy initiates an automatic stay that temporarily halts IRS collection efforts, including wage garnishments and asset seizures.
  • Fresh Start: Like with Chapter 7 bankruptcy, the Chapter 13 discharge provides you with a fresh start and clean slate by discharging not only your tax debt but all your other unsecured debt as well.

5. Consult with a Bankruptcy Attorney

Consult with a bankruptcy attorney

Bankruptcy is an intricate legal process, and the decision to file should be made after thorough consideration and consultation with a bankruptcy attorney. An experienced attorney can evaluate your specific tax debt situation, eligibility for discharge, and which bankruptcy chapter is most suitable for your needs.

Conclusion

Dealing with IRS income tax debt can be a stressful and challenging endeavor. Still, it's essential to explore all available options and choose the one that aligns most closely with your financial goals and circumstances. Bankruptcy, particularly Chapter 7 and Chapter 13, can offer a pathway to relief from overwhelming tax debt and a fresh financial start.

Contact Our Bankruptcy Lawyers at Fleysher Law for an Initial Consultation Today

Consulting with a qualified bankruptcy attorney is crucial in determining whether bankruptcy is the right choice for your IRS income tax debt and ensuring that you navigate the process successfully. At Fleysher Law, we specialize in guiding individuals through their financial challenges, offering expert assistance to alleviate their bankruptcy woes. Our team of knowledgeable professionals understands the intricacies of IRS tax debt and can help you assess your situation, negotiate with the IRS, and explore viable solutions.

Regain control of your finances and secure your peace of mind. Contact Fleysher Law today and let our expert bankruptcy attorneys craft a tailored solution to your IRS income tax debt. 

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