In some circumstances a chapter 13 bankruptcy is a better strategy for dealing with past due taxes. Indeed, as my last blog post explained, a Chapter 7 case can be a powerful tool in dealing with past due taxes. A chapter 7 stops, at least briefly, any pending IRS or Oregon Department of Revenue (ODR) paycheck or bank account garnishment, and most other collection actions. And, most importantly, a Chapter 7 case can either: 1) discharge (legally write off forever) certain, usually older, income tax debts; or 2) discharge enough of your non-tax debts so that—after your Chapter 7 case is completed— you can afford to enter into a reasonable monthly payment plan with the IRS and/or the ODR on the taxes that can’t be discharged; or 3) a combination of the above two—discharge some of your tax debt, along with some or all of your other debts, so that you can afford to enter into a monthly payment plan with the IRS and/or ODR on the taxes that can’t be discharged.
Income tax debts CAN be “discharged” (permanently written off) if they meet certain conditions. These conditions may be quite easy to meet. To write off income taxes under either Chapter 7 or Chapter 13 takes meeting four conditions. Two of these conditions are very seldom a problem. That means that most likely you can discharge a tax debt if you meet the other two conditions. And you will likely meet these other two conditions sooner or later. It’s mostly a matter of time.
The Advantages of Filing Bankruptcy BEFORE You Get Hit with an Income Tax Lien Adam M. Weiner Bankruptcy Layer, Attorney, Tax LienBankruptcy treats creditors with collateral much better than those without. This is especially true if one of your creditors is the IRS or the Oregon Department of Revenue. The difference is that with them YOU have some control about whether these taxing authorities have collateral or don’t.