Bankruptcy

How do you proceed if your IRS issues are so big that filing for bankruptcy is the best option? You'll determine how bankruptcy will affect you and your family through research. Of the two types of bankruptcy, determine which one will work best for you.

Types of Bankruptcy

Chapter 7: Liquidation Bankruptcy. This is the liquidation of the debts, non-exempt and dischargeable. Some of your tax debts more than three years old might be liquidated. It will not affect recent taxes.

You can settle the tax debt over an extended period of time through a repayment plan bankruptcy (Chapter 11, 12, or 13). If you stick to the deadlines for payments set, in time you will have paid your entire tax bill.

Disadvantages to Bankruptcy

Prior to arriving at a decision, you must look at the disadvantages involved with bankruptcy. One is that you may still need to pay taxes even when you reached the end of the bankruptcy term. The IRS has extra time to collect the debt. The time remaining on the original 10 years plus the time your bankruptcy case was filed plus 180 days is in the statute of limitations on your tax bill that is extended.

Another point to consider is how bankruptcy affects your credit rating. Bankruptcy is a public record and will remain on your credit record for as long as 10 years. This might make it hard for you to lease an apartment or to obtain a credit card, especially one with a good rate. You may find it difficult to get a mortgage or insurance. Bankruptcy will indicate to many lenders that you've had a hard time repaying your debts and may refuse to extend credit to you.

Something to Consider

Filing for bankruptcy will impact you and your family's lifestyle more than the other methods to solve your back tax issue. The fact that you'll have the stigma of bankruptcy over your head up to ten years is enough to reconsider. If your considerable debts could be discharged through a bankruptcy, however, it could be your best option.

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