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Bankruptcy and Back Taxes

Sometimes people find themselves in tough financial situations. Some people cannot pay their federal taxes and consider bankruptcy as an option. While bankruptcy is an option, there are other options available through the IRS.

If filing bankruptcy is the option you choose, the most common is Chapter 13 bankruptcy for individuals. If you file a Chapter 13 bankruptcy claim you will be required to file a number of tax documents as well as keep up with your tax obligations. These obligations include:

  • Providing tax returns for the four years prior to filing bankruptcy
  • Continue to file, or obtain an extension to file, all tax returns
  • Pay all current taxes as they become due

Other options exist if you are not sure you want to file bankruptcy. The IRS provides payment plans and offers to help assist you in taking care of past due federal taxes. If you are financially unable to pay your taxes you may make monthly payments through an installment agreement.  Prior to application for a payment agreement individuals must still file all required tax returns.  To qualify for a payment agreement you must owe $50,000 or less in combined individual income tax, penalties and interest and have filed all required returns. You can apply online for a payment agreement.

An offer to compromise allows you to settle your tax debt for less than the full amount owed. It may be an option for you if you cannot pay your full tax obligation or if doing so will create a financial hardship to you. The IRS will consider your ability to pay, your income, expenses and assets in determining whether an offer to compromise is appropriate in your situation. The IRS generally approves offers to compromise if the amount offered represents the most they expect to collect within a reasonable period of time.

Consult an Attorney

If you are behind in taxes and the above options do not fit your situation, bankruptcy is available to you. Filing bankruptcy can help you make a plan to repay your debt. Bankruptcy cases are handled in federal courts and an experienced attorney can help you navigate the process.

Chapter 13 bankruptcy is often referred to as the wage earner’s plan. It allows individuals with income to develop a plan to repay all or a portion of their debts. In Chapter 13 cases, the purpose is to create a repayment plan to creditors. The biggest advantage to Chapter 13 bankruptcy over other available bankruptcy options is that it provides individuals the option to save their home from foreclosure. There are eligibility requirements for Chapter 13 filings and you should consult an attorney to discuss if you are eligible and if not, what your options are. Although bankruptcy is a federal process, the case begins in the bankruptcy court serving the area where the debtor lives.

If you are considering bankruptcy in Danville, Indiana or surrounding areas, contact Attorney Christopher L. Arrington to assist with your case. Attorney Arrington works with his clients to learn their situation and explain options that are available to them. Call our office today to discuss your options.



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