Understand The Facts About Bankruptcy

How should you proceed if your IRS problems are so severe that filing for bankruptcy is a good option? You should do your research and see how bankruptcy will impact you and your family in the future. Because there are two types of bankruptcy, you should decide which one will work best.

Chapter 7 or liquidation bankruptcy means liquidating non-exempt and dischargeable debts. Most income tax debts more than three years old will be liquidated, though recent taxes won't be affected.

Chapter 11, 12, or 13: Repayment Plan Bankruptcy. You're given an extended period of time to pay your debts. These has its own deadline for the taxes to be paid and when that's over, you'll have paid your entire tax bill off.

Disadvantages to Bankruptcy

One of the negative factors of bankruptcy is that you will still owe taxes, even when you reach the end of the bankruptcy term. The IRS is given more time to collect your tax debt and the statute of limitations is extended to the time that remains on the initial 10 years plus the time your bankruptcy case was filed plus an additional 180 days.

Also consider how your credit rating will be impacted by the bankruptcy. Bankruptcy is public record and will remain on your credit record for as long as 10 years. Getting a credit card with a good rate or renting an apartment will be harder for you. Also, insurance and a mortgage loan will be hard to get. Bankruptcy indicates to lenders that you have had a hard time repaying your debts and may refuse to extend credit to you.

Something to Consider

If your only significant debt is to the IRS, you may want to find another way out of your tax debt situation that will not impact you and your family's lifestyle as much as filing for bankruptcy would. Having the stigma of bankruptcy over your head for as long as ten years ought to help you reconsider. However, if your debts are considerable and could be discharged through a bankruptcy, it might just be an option to consider.

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Originally posted 2007-11-09 08:04:48. Republished by Blog Post Promoter

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