No matter the causes, numerous people fall on financially hard times. The IRS may decide that you also should settle your tax debts, increasing the money owed to creditors. The IRS can be very unforgiving, unlike other bill collectors. If the IRS moves to continue certain collection methods, they could effectively wreck a taxpayer's life. What numerous people do not know is that filing for bankruptcy may allow them a degree of protection from some of the worst tactics used by the IRS in their debt collection practices.
Taxpayers normally misconstrue bankruptcy. It is seen as an easy way to get out of debts. This is not true. Bankruptcy was initially created as a way that allows people to seek legal debt relief, and that includes tax debt relief. When you file for a Chapter 7 bankruptcy, there's a considerable chance that, along with all of your regular debts, your tax debt will also be erased. There is no guarantee that tax debt will be considered, but this can happen. For anybody filing a Chapter 11, 12, or 13 bankruptcy, they'll be provided the ability to move the IRS into settling for a payment plan and settle their IRS issue.
When you file for bankruptcy, you get legal protection which is typically called the "automatic stay". The IRS and all of your creditors should stop all actions against you once you have filed for bankruptcy. Appealing to the bankruptcy court is the only way that any of your collectors can bypass the automatic stay while your bankruptcy is still in the process of being discharged or dismissed. Judges rarely lift the automatic stay, although the IRS is a government office. Often, in order for that to happen, the IRS is liable for proving that some form of fraud is being conducted by the taxpayer who's filing for bankruptcy. However, if you are conducting fraud, you have a much more serious IRS problem on your hands.
The statute of limitations is definitely lengthened when you file for bankruptcy. Basically, the 'clock' freezes until the bankruptcy is either discharged or dismissed. If it's dismissed, then the clock goes on from that point forward.
Filing a Chapter 7 bankruptcy is the only form of bankruptcy that will effectively cancel any tax debts. For tax debts to be eligible for discharge in a Chapter 7 bankruptcy claim, certain conditions must be met. For example, the three-year rule must be met during the bankruptcy proceeding. The 3-year rule states that any tax debts should stem from a tax return that was filed at least 3 years prior to the year you file for bankruptcy. Generally, this pertains to April 15 of the year that the return was actually filed, but it also includes extensions.
There is also the two-year rule which includes taxes filed two years before bankruptcy. Taxes assessed 240 days before filing the bankruptcy claim are applicable in the 240-day rule.
Even by filing a Chapter 7 bankruptcy, the IRS still has rights to the taxpayer's property at the time of filing if a tax lien was filed before the bankruptcy claim. The IRS applies this important loophole. The taxpayer basically is bought time to settle the IRS issue by re-organization when a Chapter 11, 12, or 13 bankruptcy is filed.
Darrin T. Mish is a nationally recognized tax attorney whose practice represents clients nationally and internationally with IRS problems. If you would like more information about
IRS help, IRS attorney, IRS lawyer, please visit
http://getirshelp.com.
