Filing Bankruptcy IRS – Will This Help Eliminate Your Tax Debt?
Filing Bankruptcy IRS – This is a very confusing topic that is best explained by the people who have experience in dealing with the IRS special procedures division. I will try to help with some of the most common questions that come up regarding the bankruptcy code. Bankruptcy should not be used as a way to defend against a collection officer. Too often I have seen people file a Chapter 7 or Chapter 11 at the advice of their attorney, when they could have negotiated a settlement through the collections division of the IRS. They have set up various departments that will help you settle any problem you have with the collection officer. If a good representative is familiar with the fair treatment under the current guidelines of the collection division, then the IRS representatives should be able to agree with a reasonable settlement, avoiding bankruptcy too!
This area gets so abused that I have even seen corporations that are insolvent file a Chapter 7 (complete dissolution). If the corporation is insolvent, what are you trying to protect? There is a much better and less costly way to settle a tax debt owed by a corporation. In fact this is my best money saving service. I have saved many corporations from being shut down, and have created huge tax savings in the process.
If you owe money to the IRS and you don’t want to pay it, or you refuse to pay what an offer in compromise will require you to pay, then bankruptcy (Chapter 7) may wipe out your IRS tax debt; all of your taxes. If any years have been assessed over 3 years ago, then they may be discharged in a bankruptcy. There may be circumstances that extend the 3 years. An attorney can advise you on what taxes each bankruptcy can take care of. Many people think that a Chapter 13 bankruptcy (wage earner and small business non-corporation plan) will save them from all penalties and interest. They do not know that it will save them from all penalties and interest only if the bankruptcy petition is filed prior to the date the IRS files the lien for those years.
Under certain insolvency situations, your overall debt may not have to be paid back because by the end of the bankruptcy, some debt will remain unpaid. Do not confuse this with a discharge of penalties and interest. I have seen the IRS levy paychecks for the balance of debt that was not discharged in a bankruptcy. The debt owed has been reduced to a judgment, thereby extending the 10 year statute of limitations they have to collect a delinquent balance. It is important that you understand the difference between a discharge of lien verses a discharge of the debt itself. An attorney who has examined and solved IRS motivated bankruptcies cases, will have the necessary skills to explain these situations to you. I have had many potential clients come in my office after a seizure by the IRS wondering why the bankruptcy did not erase all liabilities.
More often than not a bankruptcy will not solve your IRS problems the way most people believe it will. Another common problem is that all years, periods, etc. that should be listed as debt are not listed in the petition. Usually records of account are not pulled to verify this. The result is that while you think you are protected by the bankruptcy, the IRS can take collection action and seize your spouse’s paycheck in order to pay for the periods and the past years not covered by the bankruptcy. It gets worse… anyway… do not select an attorney based on the lowest price.
