If you owe tax debts that are not dischargeable in Chapter 7 Bankruptcy or Chapter 7 Bankruptcy is not a viable option, you should consider Chapter 13 Bankruptcy as a potential option for your tax debt woes.
Chapter 13 Bankruptcy can force the IRS into accepting a payment plan for up to 60 months, whether the IRS likes it or not. Furthermore, tax penalties will be discharged in a Chapter 13 Bankruptcy whether or not the underlying tax debts is dischargeable. In contrast, a Chapter 7 Bankruptcy cannot discharge tax penalties if the underlying tax debt cannot be discharged. If the old tax debt is dischargeable in Chapter 7 Bankruptcy, it is also dischargeable in Chapter 13 Bankruptcy. During the Chapter 13 Bankruptcy, the IRS, or tax collectors provided for in the plan, cannot record a tax lien. However, any tax lien recorded prior to the Chapter 13 Bankruptcy filing, can be eliminated or reduced to the value of the assets.
Chapter 13 Bankruptcy deals with all debts. All your other creditors must sustain from collection activities, which leaves funds available to pay your Chapter 13 plan.
Moreover, all debts discharged in bankruptcy, whether it is Chapter 7 or 13 Bankruptcy, are not taxable income. You will not be required to pay taxes on discharged debts in bankruptcy unless those debts are already forgiven or cancelled prior to filing your bankruptcy case. Sometimes, creditors issue a 1099-C form even though you received a discharge for the debt. Do not ignore the 1099-C form. Consult your tax professional to file the necessary forms to correct this mistake.
For more information on how Chapter 13 Bankruptcy can help you with IRS tax debts, schedule a consultation with Muoi Chea, bankruptcy attorney with offices in Sacramento, Stockton, Fairfield, CA.