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Bankruptcy Taxes Relief: Find Out if You're Eligible

There is a general belief in the United States, among both taxpayers and most tax professionals, that Federal income tax debts cannot be discharged by filing for bankruptcy. However, this is a myth and is not correct. There are some circumstances under which people can receive bankruptcy taxes relief in addition to the other debt relief they receive when filing for bankruptcy.

Gaining tax through bankruptcy proceedings is a complicated matter, and undoubtedly this is one reason that there is a great deal of confusion regarding this issue. If you are in a situation where you have Federal back tax issues that are due, then it is even more important to get professional help with bankruptcy, as the tax issue complicates the process even more than in a normal bankruptcy case. There must be great care taken in the process of filing for bankruptcy, to be certain that all the details are properly handled, especially when any type of taxes are to be included among the debts.

Sorting through the various regulations amid the maze that is created by the Internal Revenue Service codes, the Federal Bankruptcy codes, the levying and lien abilities of the IRS, and the rights of the taxpayer is a terribly complex task. But, there are some circumstances when a person will find themselves with the right set of conditions which will allow them to take advantage of bankruptcy taxes relief, in order to resolve daunting tax issues.

Filing for taxes relief though either a Chapter 13 bankruptcy or a Chapter 7 bankruptcy will cause an automatic stay to be issued. This will effectively stop all collection activities. This includes stopping bank account levying and garnishing of wages by the IRS and other creditors as well.

Once the stay is issued, the taxpayer and their bankruptcy attorney have some breathing room and time to decide how to best proceed. They can either attempt to get a discharge of the tax debt under a Chapter 7 filing, or they can reorganize the tax obligation by filing Chapter 13 bankruptcy. Which Chapter of bankruptcy is filed will depend on a number of factors, including the total amount of all the debts that are owed, the assets of the debtor and the expected future income and ability to pay under a Chapter 13 reorganization.

In 2005, the US Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This act made a number of reforms to the Federal Code governing filing for bankruptcy. One of these changes was a merging of the discharge rules that applied under a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, and a Chapter 13 bankruptcy.

There is no question that in this situation, it is absolutely essential to secure adequate bankruptcy help in order to attempt to gain bankruptcy taxes relief. There seems to be no single approach or solution to resolving tax issues via bankruptcy, as each case is taken under consideration individually. In general, it can be stated that most of the time old tax debts are more likely to be considered for discharge than new tax debts, which tend to be treated more like property taxes which are not able to be discharged under any circumstances.