The IRS Can't Collect If You are Bankrupt!

Many people need to pay money because of problems financially. To collect tax debts, the IRS uses particular techniques, making it the most unforgiving of creditors. You can get the IRS off your bank with the protection made available by a bankruptcy claim.

Bankruptcy is typically misunderstood by taxpayers. It is viewed as a simple method to escape from debts. This is not so. Bankruptcy was first created as a method that allows people to look for legal debt relief, and that includes tax debt relief. When you file for a Chapter 7 bankruptcy, there's a considerable chance that, along with all of your regular debts, your tax debt will also be cancelled. There's no guarantee that tax debt will be considered, but this can occur. For anyone filing a Chapter 11, 12, or 13 bankruptcy, they'll be provided the opportunity to convince the IRS into settling for an installment plan and settle their IRS problem.

Filing for bankruptcy gives you an 'automatic stay', legally protecting you from all actions against you made by the IRS and other creditors. The sole way for the automatic stay to be lifted is when creditors appeal to the bankruptcy court. But this happens very rarely. Creditors such as the IRS should prove fraud in the bankruptcy claim for an automatic stay to be lifted. A more serious IRS issue is inevitable if fraud is uncovered.

Tax debts are simply frozen until the bankruptcy claim is dismissed or discharged. The statute of limitations is lengthened and continued when bankruptcy is dismissed.

The sole form of bankruptcy that will clear any tax debts definitely is the Chapter 7 bankruptcy. For tax debts to be eligible for discharge in a Chapter 7 bankruptcy claim, certain conditions must be accomplished. For instance, the three-year rule have to be met during the bankruptcy proceeding. A tax return filed at least 3 years prior to filing for bankruptcy is the basis for tax debts in the 3-year rule. This includes extensions, although often pertaining to April 15 of the year the return was filed.

Taxes filed two years prior to bankruptcy is included in the two-year rule. Taxes assessed 240 days prior to filing the bankruptcy claim is applicable in the 240-day rule.

If a tax lien was filed prior to filing bankruptcy, the IRS still has rights to the taxpayer's property, even by filing a Chapter 7 bankruptcy. The IRS applies this significant loophole. The taxpayer basically is bought time to settle the IRS problem by re-organization when a Chapter 11, 12, or 13 bankruptcy is filed.