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How Bankruptcy May Help with Your Tax Debt

 Posted on July 08, 2024 in Tax Debts

Schertz bankruptcy lawyerFacing overwhelming tax debt can be a frustrating experience that you feel you may never climb out of. Many individuals and businesses struggle to meet their tax obligations, leading to mounting pressure and financial stress. However, bankruptcy may offer a solution to alleviate this burden. A Texas lawyer can help you understand how bankruptcy can potentially help with tax debt and provide insights into the process.

Can Bankruptcy Get Rid of Tax Debt?

The short answer is: it depends. While bankruptcy cannot eliminate all types of tax debt, it can provide relief for certain tax obligations under specific circumstances. Here are some factors that determine whether your tax debt may be dischargeable:

  • Age of the tax debt: Generally, income tax debt must be at least three years old to be eligible for discharge.
  • Timely filing: You must have filed a tax return for the debt in question at least two years before filing for bankruptcy.
  • Assessment timing: The IRS must have assessed the tax at least 240 days before your bankruptcy filing.
  • No fraud or evasion: The associated tax debt cannot be discharged if you have committed tax fraud or willful evasion.

Benefits of Bankruptcy for Tax Debt

Even if your tax debt is not entirely dischargeable, bankruptcy can still offer significant advantages:

  • Automatic stay: Filing for bankruptcy triggers an automatic stay, which halts collection efforts by creditors, including the IRS.
  • Repayment plans: Chapter 13 bankruptcy allows you to set up a repayment plan for non-dischargeable tax debts, potentially with more favorable terms than IRS payment plans.
  • Prioritization: Bankruptcy can help prioritize your debts, ensuring that you address tax obligations in a structured manner.
  • Discharge of other debts: By eliminating other dischargeable debts, you may free up resources to tackle your tax obligations more effectively.

How to Navigate Bankruptcy and Tax Debt

Addressing tax debt through bankruptcy requires careful consideration and guidance. The process begins with thoroughly assessing your financial situation, including reviewing your tax debts, their ages, and the circumstances surrounding them. Gathering comprehensive documentation is crucial - collect all relevant tax returns, IRS correspondence, and financial records. These documents will serve as the foundation for your case and provide essential information for your legal advisors. With this information in hand, consult a bankruptcy attorney experienced in tax matters. His or her knowledge will be invaluable in evaluating your specific situation and recommending the best course of action.

Before committing to bankruptcy, explore alternative options such as an offer in compromise or installment agreements with the IRS. These alternatives may provide relief without the long-term implications of bankruptcy. However, if bankruptcy emerges as the most viable solution, understand its full implications, including its impact on your credit score and future financial opportunities. Timing is critical in bankruptcy filings, especially concerning tax debt. Acting promptly can preserve more options for addressing your tax obligations effectively.

Reach Out to a Schertz, TX Bankruptcy Lawyer

Start the process of seeing what options may be available to you by speaking with a San Antonio, TX bankruptcy attorney. An attorney can assess the nature of your tax debt, evaluate the potential benefits of bankruptcy, and help you make an informed decision about your financial future. Call Law Offices of Chance M. McGhee at 210-342-3400 to schedule your free consultation.

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