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Helping People Get A Fresh Financial Start to Regain Financial Independence

Can a Chapter 13 bankruptcy help me with IRS debt?

On Behalf of | Jul 28, 2022 | Chapter 13 Bankruptcy

An Indianapolis resident does not have to be dishonest or even careless to wind up in tax debt with the Internal Revenue Service.

A simple mistake or even just some financial hardships that make it hard to pay a tax bill can mean an Indiana family will be dealing with an IRS tax lien or other enforcement actions. Tax liens are far-reaching, and the IRS will enforce them in order to collect taxes owed.

Not surprisingly, federal tax liens are also difficult to shake. However, both a Chapter 7 and a Chapter 13 bankruptcy can offer relief from IRS tax debts in the right circumstances.

What is important for families to remember is that the tax debt has to be older than 3 years to be eligible for a discharge. Also, to get a discharge, it is important for debtors to remember that they have to file their tax returns.

Returns filed after a debtor files for bankruptcy ordinarily do not get a discharge.

Chapter 13 bankruptcy may offer advantages to families with tax debts

There are some advantages to using Chapter 13 if a family owes tax debts to the IRS.  For one, taxes paid through a Chapter 13 plan are not subject to additional interest assessments.

On a related note, penalties associated with back taxes will get treated as ordinary unsecured claims, meaning a person may be able to avoid paying all of them.

Finally, if a family has a tax lien against their property, they may be able to avoid the lien through a process called lien stripping. Again, the result is they may not have to pay the entire debt.

Facing collection from the IRS can be very stressful, but legal options are available to Indiana residents in this serious financial situation.

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