Bankruptcy protection is a handy answer to many people’s money woes, but the law has its limits. If you’ve got tax debts that you’d like to resolve by filing for bankruptcy, you need to understand the essentials.
Bankruptcy protects consumers by helping them resolve their debts and stopping harassment by collectors. It can also give debtors welcome breathing room before they attempt to make a rebound.
Tax Debt and the Automatic Stay
The automatic stay is a freebie of sorts — It provides temporary relief even if the court denies you bankruptcy protection. What’s more, it goes into effect the instant you file.
While active, the automatic stay bars creditors, such as the IRS, from trying to collect your debt balance. Creditors can ask the court to lift the stay so that they can keep coming after you. Although judges won’t remove your temporary protection without a good reason, you may be less likely to receive a stay after filing multiple times.
The End Goal
Automatic stays only last during your bankruptcy case. The real objective of filing is to convince the court that you’re worthy of more permanent protection.
Bankruptcy involves the legal discharge, or cancellation, of outstanding debts that you lack the means to pay. Different types of filings, such as the overwhelmingly common Chapters 7 and 13, have distinct rules for the kinds of debt they’re allowed to discharge.
What makes taxes bankruptcy eligible?
To be discharged, your tax debts must have already been three years old when you filed and pertain to business or compensation-related income. You also need to have filed an on-time tax return no less than two years before seeking bankruptcy.
By law, the IRS is required to assess, or record, all overdue tax liabilities. Your IRS assessment must have occurred at least 240 days before you seek bankruptcy.
Bear in mind that you’ll need to be on your best behavior during the case. For instance, skipping a return or missing your current-year tax deadline might result in your bankruptcy petition’s dismissal.
Using Bankruptcy for Taxes
Bankruptcy is an ideal fresh start for many Wisconsin taxpayers. Considering that American consumers struggle beneath about $4 trillion in debt, it’s not unreasonable to assume that someone with tax liabilities might also need relief elsewhere. Filing for Chapter 13 or Chapter 7 bankruptcy could be a viable answer.
Not every debt qualifies for bankruptcy. Depending on your tax circumstances, you might only receive partial relief. Considering a bankruptcy filing is still worth it, however, because it might be the one thing that turns your situation around. Learn whether it’s the right move for you by contacting the Burr Law Office team. Call 262-827-0375 for a FREE tax debt relief consultation today.