"Perish the very thought of it," you say; but, it is, often, all one can do to get tax relief.
Perhaps to lighten the emotional blow, one may think of bankruptcy as another way of wiping the slate clean and starting again.
Let's look at the details of filing for bankruptcy.
There are basically two types of bankruptcy: Chapter 7 or Chapter 13.
Chapter 7 is a straight bankruptcy or liquidation.
It allows a person to clear their obligations, as long as they are not non-dischargeable.
Most cases are referred to as "no-asset" cases since those who owe are able to protect their assets.
Chapter 13 involves the reorganizing or restructuring of the taxpayer's debt, which would allow them to protect their assets.
In order to save significant and important assets like vehicles and houses and/or homes from foreclosure and repossession, debtors often use Chapter 13 Bankruptcy.
Payment plans for a Chapter 13 are usually 3-5years and will prevent the accumulation of penalties and interest during these years.
Certain criteria must be met for taxes owed to qualify for discharge under Chapter 7, otherwise there is no tax relief for the debtor.
A few things that must exist are: 1.
Tax returns were filed more than two years before bankruptcy was filed 2.
The liability was determined more than 240 days before filing bankruptcy 3.
The taxpayer did not try to defeat or avoid the tax, and the tax owed was not due to a fraudulent tax return 4.
The tax was unsecured There are more criteria and to make sure one is 'covered' a check with a tax specialist is required.