Many taxpayers consider bankruptcy with the intent of being released from their tax debt. Tax relief may be thought of by some as motivation for bankruptcy, but going through with filing should be avoided if at all possible. When using bankruptcy as a form of tax relief, there are some essential facts that should be understood.
Filing for bankruptcy is one option for alleviating tax debt; however, it is not recommended. Taxpayers who are considering Chapter 7 bankruptcies should be sure they have all of the facts before doing so. Your odds of being released of your tax debt through a Chapter 7 can-in reality-be rather slim, not to mention that this is a rather costly method of eliminating tax liabilities. This route should be your absolute last resort after exhausting any and all other options available to you; in other words, “Plan Z” on your list.
Filing a chapter 13 bankruptcy is also a method that should be used as a last resort. With a Chapter 13 bankruptcy, the IRS can work out a payment plan for taxes owed. With this action, debt owed to the IRS is never forgiven, just delayed through a long series of painstakingly extended payments. Not only is bankruptcy in any form less promising than other more moderate tax relief methods, but it can also ruin your credit. On the other hand, if you have serious credit issues already, you may see no harm in filing bankruptcy.
You must understand that bankruptcy was not designed as a bandage or cure for tax issues. Certain laws allow the IRS to collect on back taxes even if a bankruptcy is in effect. It is all quite complicated, even when broken down into layman’s terms. Tax relief is one of those areas that you do not want to guess on. One wrong move could leave you in a worse situation than the one you were initially trying to get yourself out of.
