Tax debt is becoming one of the most dangerous issues among the taxpayers. This is because they are unable to clear the left over amount and next year’s tax return is on the cards. There are several tax debt relief options that you can use to reduce your tax amount and settle your taxes. However, you would still need to pay. Therefore, there are tax payers who think bankruptcy is a viable option to get rid of tax debt as they can get out of the mess without paying money. Some of the world’s biggest businesses have used bankruptcy to obtain tax relief and make a fresh start.
There is a myth among the taxpayers that bankruptcy allows them to get rid of the tax debt without paying a single penny. Bankruptcy does not always remove all liabilities. Moreover, you might need to pay penalties, interest and IRS taxes in order to qualify for the 100% discharge of the tax debt. If you have big tax problem, bankruptcy is not the only way out. Sometimes, you need to look out for other alternatives as well. To check if bankruptcy is the apt solution or not, first thing that you need to check is what the biggest tax issue is. If you owe mainly to the IRS then you should consult your tax attorney or CPA who would make you aware of the alternatives that can assist you in getting back tax relief. However, if you owe money to number of creditors, bankruptcy is arguable is the best option.
There are different types of bankruptcies. Therefore, you should check which is the most appropriate in your case. Chapter 7 bankruptcy is the most wanted. Yes, every tax debtor looks out for an opportunity to get Chapter 7 bankruptcy because in this you get discharge of 100% tax debt. With the changes in tax law, now you need to appear for financial means test in which you need to prove that you cannot pay. In case, you petition for chapter 7 bankruptcy does not get approved, you tax attorney must file for chapter 13 bankruptcy. Chapter 13 is quite similar to Offer in Compromise in which you are paying according to a payment plan. It is also known as Wage Earner Plan. It is feasible alternate however; it would hit your credit score very badly.
Chapter 11 is another kind of bankruptcy which is primarily used by the businesses so that business can be reorganized. To get chapter 11 bankruptcy you would be negotiating with your creditors to restructure debts so that their business can emerge from bankruptcy with a sustainable debt load. To use chapter 11 bankruptcy in better manner, you should consult your tax attorney or CPA. Bankruptcy is not always the best choice to resolve your back taxes issue. Moreover, it will drop you credit scores drastically. Therefore, you should compare other alternatives with the bankruptcy. One of them is offer in compromise.