Importance of Tax and Bankruptcy Fillings

Bankruptcy is not only an answer for your difficult times but bankruptcy can also solve many of your tax debt issues. There are several provisions under the US Bankruptcy Code that can help you solve many of your tax problems, though it may not always erase tax debts completely. If you file for bankruptcy at the right time, you can buy time from the IRS. Otherwise you would be forced to accept the repayment plan proposed by IRS. However, it should be understood that bankruptcy isn't the solution or the answer for all tax woes. If you do not carefully use bankruptcy clauses, you could fall into a deeper pit.

Tax reliefs can come in various forms. The automatic stay is the most endearing feature of the Bankruptcy Code. When you get an automatic stay after you have filed for bankruptcy, it stops all creditors from directly collecting their debts from you. The stay is also applicable to IRS which cannot seize your property or issue a tax lien. However, the automatic stay doesn't stop the IRS from auditing your taxable income, issuing a tax deficiency notice; issue a notice for tax assessment etc. While the only way private creditors can resume debt collections is when they request the judge to remove the automatic stay, the IRS rarely takes that effort.

The Taxes Which Will Be Wiped Off In Cases of Bankruptcy

There are five instances where taxes can be completely wiped off under Chapter 7 of the federal laws. Only when these five conditions come true, will your tax be wiped out completely.

1. Only income taxes can be pardoned under the law. Other taxes such as Trust Fund Recovery Penalty, payroll taxes, fraud penalties are never eliminated under any clause of bankruptcy.
2. When you do not have a case of filing a fraudulent tax return. Additionally, if you haven't willfully attempted to evade paying taxes by using a false Social Security Number, you taxes may be pardoned.
3. The tax return should originally be due at least three years prior to your filing for bankruptcy.
4. If you had filed for a tax return two years from the time you filed for bankruptcy.
5. If the IRS carried forward a tax assessment at least 240 days before you filed your bankruptcy petition.

Important Things to Remember With Regard to Tax Exemption and Bankruptcy

A Chapter 7 clause can only wipe off your personal tax obligations but not anything else. If there is any lien that was pending before you filed for the bankruptcy, the IRS has the right to seize your property that you owned before you filed the bankruptcy case.

Once your bankruptcy case is over, the IRS doesn’t come to seize your property immediately. There is a provision that the IRS can only seize your retirement accounts, pensions and real estate after the term of the bankruptcy. Remember that the IRS usually has 10 years to collect pending tax. Thus they actually have quite some time to get back their dues.

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