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Bankruptcy
Bankruptcy can be a welcome relief, or a
depressing episode in your life. It all depends on your ability to
adapt, adjust, and rethink your financial life.
If you are thinking about bankrupting out
of Federal Income Taxes, there are a few things to consider.
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Have the tax returns been filed?
Only personal income taxes that have been filed by the taxpayer can
qualify to be discharged in bankruptcy.
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Have the taxes been assessed long
enough to qualify for discharge in Chapter 7 Bankruptcy?
Generally 1040 taxes that are at least 3 years old and have been
assessed for 2 years qualify. Other federal taxes will probably not
qualify, though interest and penalties might.
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Have you filed Chapter 7 Bankruptcy
before? If so, what was the discharge date? Generally, you can file again
after waiting 7 years.
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Does the IRS have liens filed against
you? Do you own real estate? The liens will survive
bankruptcy and the IRS will be waiting for you on discharge.
Bankruptcy will not save your real estate if a Federal Lien is
in place.
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Are taxes the only reason you are
considering bankruptcy? If so, try an Offer in Compromise first
as the IRS must take your ability to discharge the taxes in Chapter 7
into consideration. This often requires an appeal but usually
works on appeal.
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Do you owe other significant debt (more than a year's net
pay in other debt) besides the taxes you would like to discharge?
If so, you should consider Chapter 7
bankruptcy. The serious pain would be over in 2 years. It
would probably take you 5-8 years to pay off the other debts and your
taxes. Something to consider.
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Types of Bankruptcy for
individuals: Chapter 7 Liquidation - the only bankruptcy I
ever recommend. Chapter 13 is nothing more than 5 years of
payments you cannot make as the trustee, and your attorney
collects handsome fees knowing you will probably have to dismiss out or
be dismissed out for missing a payment. Then you are right back
where you started or worse.
Randy
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