Personal bankruptcy can help people struggling financially regain control over their circumstances. Filers pursuing bankruptcy relief are eligible for an automatic stay that ends collection efforts the same day that they file in most cases.
They can also discharge eligible debts if they successfully complete the bankruptcy process. Many people start considering personal bankruptcy due to medical debt or credit card debt. However, tax debts can also put pressure on a person’s finances. The Internal Revenue Service (IRS) adds interest and penalties to the balance due, making tax debts hard to overcome if they are sizable. State authorities could sell a home to recoup unpaid property taxes.
Those struggling with debts that they cannot pay in full may consider bankruptcy as a way to regain control of their finances. Can a personal bankruptcy filing help address significant tax debts?
There are different rules for different taxes
Certain types of taxes are not eligible for a discharge during bankruptcy. People who have fallen behind on property taxes, for example, cannot discharge what they owe through bankruptcy.
However, income taxes are sometimes eligible for discharge in a successful bankruptcy filing. Income tax debts that are three years old or older are eligible for discharge in a successful bankruptcy case. Filers may also be able to work out payment arrangements with both income tax and property tax authorities in a Chapter 13 filing.
Reviewing one’s financial obligations with a skilled legal team can help filers preserve their resources while addressing their most pressing financial obligations. While personal bankruptcy doesn’t simply eliminate all tax debts, it can be a way to address income tax debts and prevent an escalation of collection efforts overall.