Bankruptcy and Tax Debt
If you owe federal taxes that you can’t afford to pay, bankruptcy may be an option in some situations. However, it’s not the only solution. Depending on your circumstances, you may also qualify for an IRS payment plan or an Offer in Compromise, which allows some taxpayers to settle their debt for less than the full amount owed.
Filing for Bankruptcy
For individuals, the most common type of bankruptcy is Chapter 13, which allows you to repay debts over time. If you’re considering Chapter 13, there are several important tax requirements:
- You must have filed all required tax returns for the previous four years.
- You must continue filing your tax returns (or request an extension) while your bankruptcy case is active.
- You must pay any new taxes that become due during the bankruptcy process.
- Failing to file tax returns or pay current taxes could result in your bankruptcy case being dismissed.
Businesses typically file under Chapter 7 or Chapter 11, although individuals may also qualify for those types of bankruptcy depending on their financial situation.
Explore Your Options First
Bankruptcy isn’t the right solution for everyone. An experienced tax professional can review your financial situation and help determine whether bankruptcy, an IRS payment plan, an Offer in Compromise, or another tax relief option is the best path forward.
Schedule a free, confidential consultation to discuss your situation and learn which tax relief options may be available to you.