A common misconception held by some people is that you cannot include tax debts that you owe to the IRS in a Chapter 13 debt consolidation plan. Owing the IRS can be very scary and the IRS can make life difficult for you in their efforts to collect tax debts. The IRS often utilizes tax liens against your property and bank levies against your accounts to collect delinquent taxes.
But if you are facing a situation where you do owe IRS for past due taxes, all is not lost. First and foremost you should NOT ignore the situation. It’s not going to go away on its own. You should seek the advice of a competent attorney to review your options. Those options may include trying to work things out with the IRS through an installment agreement or a process known as an offer in compromise. These options are actions you take directly with the IRS to try and resolve your delinquent taxes. And it may be that one or the other of these options may suffice to completely resolve your tax debts.
File a Chapter 13 Debt Consolidation Case
Another option that might be the best one for you is to consider filing a Chapter 13 debt consolidation case. A Chapter 13 debt consolidation is a form of bankruptcy that allows you to set up a debt repayment plan that is based on your household income, your reasonable household living expenses, and the type of debts you owe.Debts owed to the IRS are part of that picture and will be included in your repayment plan. That’s right, you CAN (and really you must) include these debts in your Chapter 13 plan.
The major advantage to you with a Chapter 13 case is that not only are you making repayment arrangements for your tax debts; but, you are also making repayment arrangements for ALL of your debts. Another major advantage of the Chapter 13 option is legal protection from all of your creditors with a few exceptions. The IRS is not usually a part of these exceptions. So, this means that rather than the IRS utilizing its normal collection measures against you, the IRS will be a creditor in your bankruptcy case and will normally have to follow the same rules as your other creditors. Chapter 13 plans commonly last for a period of five years and, in some instances, a period of three years. When your plan is finished, you will normally emerge from bankruptcy debt free, with some exceptions such as long term mortgage debt or student loans.
Preparing for Chapter 13 Bankruptcy
If you think Chapter 13 may be the best option for you to resolve your delinquent taxes, you should gather as much information as you can about the amount of taxes owed and the years in which those taxes were first due.
Get together copies of your tax returns, as filed with the IRS, along with any letters or notices you have received from the IRS and be prepared to show these to the attorney you plan to meet. Or, at a minimum, be prepared to promptly provide this information to your attorney upon request.
A competent attorney will also be able to look into your situation and get additional information as well. Making sure your attorney is fully and properly informed about your tax situation is crucial because it will have a bearing on how your taxes are handled in your case. You may even owe some taxes that could be “discharged” in your case. This means that your responsibility to pay these taxes is eliminated at the conclusion of your bankruptcy case and you would no longer owe them.
So, if you do owe delinquent taxes to the IRS or any other taxing authority, don’t despair! And don’t ignore the situation! As quickly as possible, make an appointment with a reputable and competent debt relief attorney to review all of your options. Then, you can select the option that works best for you and finally free yourself from the worries of IRS debt.
Ed Woods is the Managing Attorney of several of the Bond & Botes Law Offices throughout Mississippi. He holds a Bachelor of Science from the University of Southern Mississippi, and a Juris Doctorate from Mississippi College School of Law. Ed puts his extensive knowledge of bankruptcy law to use defending consumers from debt collection lawsuits and more. Read his full bio here.