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Tax relief in bankruptcy
Bankruptcy can provide relief from the tax man. Some taxes and penalties are dischargeable; those that can't be discharged can be paid without interest in Chapter 13.
The automatic stay in bankruptcy stops even collection actions by taxing authorities, including garnishment and seizure. These provisions of the law apply equally to state and federal tax agencies.
More at the BankruptcyLawNetwork on filing tax returns even if you can't pay.
How much relief?
The precise measure of the relief available in bankruptcy depends on a number of factors including
1) the kind of tax involved ,
2) the age of the tax,
3) whether a return was filed, and
4) the chapter of bankruptcy selected.
Specific taxes Recent taxes Unfiled returns Trust fund taxes Penalties
Offers in compromise
An offer in compromise may be a better solution when the priority tax (recent taxes or trust fund taxes) is too large to pay off in a Chapter 13.
Read a tax professional's assessment of offers in compromise; the GAO's report on the IRS's performance in processing OIC's
In summary:
This is only a summary of the treatment of taxes in bankruptcy. The effect of recent tax assessments, offers in compromise, and amended returns have been omitted for simplicity. Be certain to bring these issues to the attention of any bankruptcy lawyer you consult.
Tax FAQ's
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Legal issues and bankruptcy questions are frequently complex and individual. The information contained here is intended to be educational only: it is not intended to be legal advice nor does it create an attorney client relationship between the viewer and the firm. You should consult with a bankruptcy attorney licensed to practice in your state for advice about your particular situation. See Law on the Internet
6/24/07