How IRS Collectors Can Be Stopped By Bankruptcy

Many people fall on financial hard times, regardless of the causes. Although they may owe substantial amounts of cash to creditors, the IRS may also decide that they, too, must be paid on tax debts. And unlike other bill collectors, the IRS can be quite unforgiving in their attempts. If the IRS moves to pursue particular collection methods, they could ruin a taxpayer's life effectively. What numerous people do not know is that filing for bankruptcy may allow them a degree of protection from most of the worst techniques employed by the IRS in their debt collection practices.

Bankruptcy is typically misconstrued by taxpayers. It is typically viewed as an easy escape or method that enables people to renege on their debts. Bankruptcy isn't a simple escape. Bankruptcy lets people seek relief from debt legally, including tax debt. There's a considerable chance that your tax debts, along with your regular debts, can be cancelled if you file for Chapter 7 bankruptcy. There is no guarantee that tax debt will be included, but this can happen. Anyone filing a Chapter 11, 12, or 13 bankruptcy has the ability to solve their IRS issue through a payment plan.

You receive an 'automatic stay' or legal protection when you file for bankruptcy. The IRS and all of your creditors must stop all actions against you as soon as you've filed for bankruptcy. Appealing to the bankruptcy court is the sole way that any of your creditors can bypass the automatic stay while your bankruptcy is still in the process of being discharged or dismissed. Judges rarely lift the automatic stay, even though the IRS is a government entity. The IRS has to give evidence that fraud is being made for that to happen. However, if you are conducting fraud, you have a much more serious IRS issue on your hands.

Until the bankruptcy claim is discharged or dismissed, tax debts are merely frozen. The statute of limitations continues when bankruptcy is dismissed, definitely prolonging it.

Filing a Chapter 7 bankruptcy is the sole form of bankruptcy that will effectively erase any tax debts. There are specific demands and requirements that need to be met in order for tax debts to be eligible to being discharged in a Chapter 7 bankruptcy. During the bankruptcy proceeding, the 3-year rule should be met, for example. A tax return filed at least 3 years before filing for bankruptcy is the basis for tax debts in the 3-year rule. This includes extensions, although generally pointing to April 15 of the year the return was filed.

There's also the 2-year rule which includes taxes filed two years prior to bankruptcy. Another rule is the 240-day rule, applicable to taxes assessed 240 days prior to bankruptcy filing.

However, even if a Chapter 7 bankruptcy is filed, loopholes still enable the IRS to collect. The IRS has first rights to any property if they recorded a tax lien before the bankruptcy was filed. The other forms of bankruptcy, Chapter 11, 12 and 13, are normally re-organization bankruptcies, and their primary advantage is to buy time to Settle a tax debt and settle their IRS issue.

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Originally posted 2008-06-24 20:31:28. Republished by Blog Post Promoter

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