IRS Tax Collection and Liens


If you are burdened with tax debt, a Chapter 7 or Chapter 13 can help you get out from under it. Taxes which are 3 years old or older can generally  be discharged in bankruptcy. Filing bankruptcy will also give you quick relief by immediately stopping all collection efforts by either the IRS or State of Arkansas. Here is how the two different chapters of bankruptcy generally help with tax debt.
 
Chapter 7 and tax collection
A Chapter 7 is straight bankruptcy which will allow you to discharge out taxes that are at least 3 years old. If the taxes where filed on time, you calculate the 3 years based on the taxable year that comes due each April 15. If the taxes were not filed on time, they have to have been filed for at least 2 years and have been assessed for more than 240 days. This applies to your income tax only. For example, if you employed people and did not pay in payroll tax, that debt is not subject to discharge.
 
Chapter 13 and tax collection
A Chapter 13 is a type of bankruptcy that reorganizes your debts and attempts to pay creditors back to the extent that you can afford to pay them. Whether you can afford to pay creditors back is based on your income and expenses. Taxes more than 3 years old can also generally be discharged in a Chapter 13 and the same general rules discussed above about Chapter 7 discharging out tax debt apply as well to Chapter 13. Depending on your income and expenses, you may get the same benefit of discharging out old taxes in a Chapter 13 as you do in a Chapter 7.
 
What About Taxes less than 3 years old?
 Taxes less than 3 years old generally have to be paid back. However, this is where a Chapter 13 can be a big advantage. A Chapter 13 is a repayment plan so taxes that are less than 3 years old can be paid under a Chapter 13 plan. This plan allows you to pay the taxes over a 5 years period and to pay them without any additional interest or penalties. If you have tax debt, you probably already know that interest and penalties add up quick. Having 5 years to pay the tax debt off without interest or penalties saves a considerable amount of money.
 
If you have tax debt which includes taxes that are both more than 3  years old and less than 3 years old, you may want to look at filing a Chapter 13 in order to discharge out the old taxes and pay back the  new taxes under friendlier terms that exclude any new interest or penalties. If all of your taxes are less than 3 years old, you would also want to look at filing a Chapter 13 in order to pay them back the debt under these friendlier terms.
 
Filing Bankruptcy Puts the Law on your Side.
When tax debts go unpaid, legal actions by the IRS almost always occurs one way or the other. By filing a bankruptcy action, you file a legal action that puts the law on your side and allows you to regain control of your finances. It is an effective way to keep the IRS from taking over your finances. It allows you to control your own finances in an orderly and predictable manner.
 
Stop IRS Tax Collection Immediately
The good news for those who are dealing with tax collection is that either Chapter 7 or Chapter 13 bankruptcy can be used to immediately stop the IRS. Either form of bankruptcy will allow you to stop IRS tax collection and improve your overall financial situation at the same time. Bankruptcy attorney Gregory Harris has helped Arkansans stop IRS tax collection for over 25 years. Contact us at the Harris Law Firm or call us at 501-372-6985 or set an appointment online.