Comments on: Will bankruptcy absolve you of tax debt?

Question: Will bankruptcy absolve you of tax debt?

jotrock — Tue, 16 Oct 2007 16:06:33 -0800

Will filing for bankruptcy absolve you of tax debt?

I owe a lot of money in back taxes, in addition to some other extremely large financial burdens that I won't get into now. The debt is from 2003 and 2004. I set up a payment program with the IRS and have kept up with the payments for about a year now. Now I'm on the brink of other financial difficulties and wondering if Chapter 7 will get rid of my tax debts as well. Even a bankruptcy lawyer I spoke with wasn't sure! The laws changed in 2005 and nobody seems to know what's going on now!

By: metahawk

metahawk — Tue, 16 Oct 2007 16:11:56 -0800

IANAL but I thought the answer was a clear-cut "no." (A friend consider bankrupcy but his debt was almost all taxes and spousal support and he was told the bankrupcy would not absolve him of either one) I wonder why you couldn't get a clear answer from the lawyer????

By: Ironmouth

Ironmouth — Tue, 16 Oct 2007 16:18:09 -0800

Too complicated and fact specific to answer. Find another lawyer.

By: scody

scody — Tue, 16 Oct 2007 16:33:06 -0800

IANAL, but I do know a friend of a friend who declared bankruptcy in 2005, and his tax debt was NOT absolved.

By: Dee Xtrovert

Dee Xtrovert — Tue, 16 Oct 2007 17:23:47 -0800

It's very, very unlikely.

By: humanfont

humanfont — Tue, 16 Oct 2007 17:32:37 -0800

I am under the impression that it can actually make your tax situation worse, since writeoff of some debts can be considered income.

By: curiousleo

curiousleo — Tue, 16 Oct 2007 18:02:27 -0800

You're kidding, right?

...:-)

actually I've heard cases where, one can make a deal with IRS to pay one time lumpsome of partial tax or long extended small payments.

IRS does not want to make some one impossible to survive even if the tax debt is very high... but definately you would want a good lawyer to deal with this stuff.

By: Divine_Wino

Divine_Wino — Tue, 16 Oct 2007 19:22:38 -0800

It's very unlikely that it will and as humanfront said it can actually make your situation worse because all of sudden your other non-tax debts might be removed, which means you have more money (on paper) to service your tax debt. You need to consult an accountant and a tax lawyer, if the one you talked to doesn't know, then you talked to a bad lawyer.

There are options, such as an offer to pay a portion of your debt based on your actual ability to pay (called "an offer in compromise", google it), but those options are really best considered with an accountant and/or lawyer who knows how to tackle the long (endlessly documented, endlessly picked over) road ahead of you with the IRS. I know you debt probably makes you reluctant to shell out money to someone else, but 500 dollars spent now could mean quite a bit less spent in the future.

By: dhartung

dhartung — Tue, 16 Oct 2007 20:29:57 -0800

The offer in compromise program is not a miracle cure, but if you are truly in dire straits the IRS can be surprisingly amenable to what is basically a settlement. Do this before you even consider bankruptcy.

That said, Five Rules for discharging tax debt in bankruptcy.

By: jmnugent

jmnugent — Wed, 17 Oct 2007 03:38:52 -0800

I think most of the comments here are correct. If bankruptcy DID absolve you of tax debt, dont you think everyone would declare bankruptcy every 5 years or so?..

_{someday we'll look back on income tax as one of the worst financial ideas ever pushed on the american people. At a minimum its unnecessary, and at worst it propogates government wastefullness. /soapbox}

By: Mick

Mick — Wed, 17 Oct 2007 04:53:44 -0800

Call and ask to redo your payment schedule to something more affordable.

Everytime I've had to deal with the IRS I've been surprised at how nice and helpful they are (I guess I should stop being surprised but I'm always convinced that the next call will go to the IRS Agent from Hell).

By: mattbucher

mattbucher — Wed, 17 Oct 2007 09:15:16 -0800

I have even worse news for you: jail time will not absolve you of your IRS debt. You need to get a tax attorney to help you achieve tax bankruptcy.

By: mattbucher

mattbucher — Wed, 17 Oct 2007 09:16:36 -0800

Sorry, I didn't mean to link to a specific tax attorney: here is an IRS article on the Offer in Compromise, which may absolve you of some tax debt (unless you are criminally charged with tax evasion).

By: jotrock

jotrock — Wed, 17 Oct 2007 11:02:33 -0800

Thank you all so much for the great answers. Take care.