For legal advice, consult with a bankruptcy attorney who is knowledgeable about handling tax debt in bankruptcy.
Basics:
- Some or all of your taxes may be dischargeable in bankruptcy.
- Only income taxes are dischargeable.
- The taxes must be from a return that was:
- Due more than 3 years ago
- Filed more than 2 years ago
- Any additional assessments or changes made more than 240 days ago
Filing a bankruptcy stops the IRS Collections immediately. You must provide them with your case number and chapter as soon as possible though.
If you own any property in which you have equity, the IRS may keep their tax lien and collection ability to the extent of the equity. e.g. if you owe the IRS $50,000 and file a bankruptcy and you have a home with $10,000 equity (market value minus encumbrances); the IRS would be able to keep their lien in effect for the $10,000. Also the right to collect that $10,000 from you once you are out of the bankruptcy.
Exactly how all this works out depends on your particular circumstances and the bankruptcy chapter you file.
Consult with a bankruptcy attorney for exactly how bankruptcy may affect you.
Copyright © 2001-2008 by Gary W. Lundgren, EA