The general answer is yes. Whether a Chapter 13 Bankruptcy or Chapter 7 Bankruptcy will be a better option will depends on the following: (1) is the tax a priority or nonpriority debt; (2) do you qualify for Chapter 7 Bankruptcy; (3) do you have nonexempt assets; (4) do you prefer to put the IRS, Franchise Tax Board or other taxing agency tax debt in a 5 year payment plan with Bankruptcy Court supervision?
If the tax debt is a priority debt, then it is not dischargeable or not eliminated through Bankruptcy filing. If the tax debt is not a priority debt, then it is dischargeable through Bankruptcy and you should file for a Chapter 7 Bankruptcy if you qualify and as long as you do not have nonexempt assets. Nonexempt assets are assets that the Chapter 7 Bankruptcy trustee can take away from you and sale to payoff your debts even if the debts are dischargeable. Click on Relief from IRS Tax Levy & Wage Garnishment through Bankruptcy for more information about dischargeable tax debt.
Next issue is do you qualify for Chapter 7 Bankruptcy. A Chapter 7 Bankruptcy is usually a 3 to 4 month process to eliminate dischargeable debts. There are no repayment plan involved. Chapter 7 Bankruptcy is income sensitive and you will have to take the “Means Test”, which is several pages of calculations involving your household income and necessary and reasonable living expenses. This can be a very complicated task and an experienced Sacramento Bankruptcy Attorney knows the tricks to make you qualify for Chapter 7 Bankruptcy. Bankruptcy is not a do-it-yourself project. A lot of things can go wrong.
Third issue is do you have nonexempt assets. If you have assets that are not protected under the California exemption statute 703 or 704 and you do not want to lose that asset, you should strongly reconsider against filing a Chapter 7 Bankruptcy. Another option you should consider is a Chapter 13 Bankruptcy, which is a repayment plan for up to 5 years.
Fourth issue is if the tax debt is a priority debt and therefore not dischargeable, do you want your bankruptcy attorney to structure a repayment plan for your IRS tax debt or other tax debt? If so, a Chapter 13 Bankruptcy repayment plan of up to 5 years might be a good fit for you. It forces the IRS, Franchise Tax Board, and other taxing agency to accept a monthly payment of up to 5 years because it is being administered through the bankruptcy court. This is a great option if you are having a difficult time working out an affordable repayment plan with the taxing agency directly. Moreover, tax penalties accrued can be discharged in Chapter 13 Bankruptcy even if the principal tax itself is a priority debt and not dischargeable.
Next question is what if you do nothing and ignore all the Notice of Levy issued by the taxing agency?
This is not a good idea because the Internal Revenue Services, Franchise Tax Board, or other taxing agency will get their money one way or another PLUS built-up penalties and interests. They have many tools to get their money. They can put a lien on your home or real estate, bank levy and wage garnishment.
For more information, call experienced bankruptcy attorney Muoi Chea in Sacramento, Stockton, Fairfield, California. She has been practicing Bankruptcy Law and filing Chapter 7 and Chapter 13 Bankruptcy for over 10 years. She accepts clients throughout Northern and Central California: Sacramento, Stockton, Fairfield, Tracy, Modesto, Roseville, Rocklin, Vacaville, Woodland, Davis, Yuba, and other nearby cities.