For most people, filing for bankruptcy is the last thing they want to do. It’s not that you don’t want to pay your debts, but that, due to circumstances beyond your control, you are no longer able to pay your debts. Unfortunately, sometimes bankruptcy is the best resolution for debt, even debt owed to the IRS.
The Raleigh tax debt resolution lawyers of Bradford Law Offices have over 25 years of experience helping people like you to conquer IRS debt. Call us today at (919) 758-8879. Your call is free and completely confidential.
Types of Debts
There are three kinds of debts a person may incur.
- Secured debt. Secured debts are debts that are for a specific amount of money for a specific item. For instance, in borrowing money for a vehicle, you may borrow $15,000 for a 2010 vehicle. The lender holds the title to the car, and the car dealer has the $15,000 while you drive the car. The vehicle is the security for the debt. If you don’t pay the debt, the lender gets the car. Other secured debts are houses, some appliances, and other such items.
- Priority debt. Priority debts are debts that are not secured but are usually owed to a government agency, such as the IRS. These debts are for a specific amount but are not attached to a specific item.
- Unsecured debt. These are debts such as credit cards, medical bills, and other loans that are not defined by a specific amount of money nor attached to a specific item. Items purchased by a credit card cannot be surrendered in bankruptcy. Should a person decide to surrender a secured item like a vehicle, then the remaining debt after the sale of the vehicle will be treated as unsecured.
What Does Bankruptcy Do?
Most people do not consider bankruptcy until they are tired of dealing with debt collectors. Maybe your mortgage company is threatening foreclosure, or your lender is threatening to repossess your car. It may be that the IRS is threatening to place a lien on your bank account or your home. Filing for bankruptcy can stop debt collectors from harassing you and trying to collect on the debt. Once you’ve filed for bankruptcy, creditors are no longer allowed to try to collect the debts you owe. Once the court approves your bankruptcy, creditors are no longer able to pursue you for any debt discharged by the court.
Types of Bankruptcies
There are two main types of bankruptcy filed by individuals.
- Chapter 7. If a person qualifies for a Chapter 7 bankruptcy, the person can discharge all their unsecured debts and any secured debts they wish to surrender. After paying the attorney’s fees and the filing fees, the debtor makes no other payments and usually receives a discharge approximately six months after filing their case.
- Chapter 13. A person usually files a Chapter 13 if they want to pay secured debts through a plan. In a Chapter 13, the person who files the bankruptcy will make monthly payments to a Chapter 13 trustee for a period of three to five years. The secured debts will be paid through the plan with interest. Priority debts will be paid in full with no interest. Unsecured payments will be paid a fraction of the amount of the debt. The person will receive a discharge of the unsecured debts after the plan has been paid in full.
Other types of bankruptcy are Chapter 8 and Chapter 11. Chapter 8 is for people whose primary source of income is in agriculture. Chapter 11 is for debts that are above the ordinary, usually reserved for businesses or individuals with large holdings of assets.
Bankruptcy affects your credit score. The bankruptcy will remain on your credit report for a period of seven to 10 years, depending on whether you file a Chapter 7 or Chapter 13. The further you get away from discharge, the better your credit score will be.
Can IRS Debt Be Handled in Bankruptcy?
When a person with IRS debt files bankruptcy, the IRS is notified of the filing. At that point, the IRS will consider the type of bankruptcy that has been filed and will take appropriate action.
- Chapter 7. A person can discharge IRS debts in a Chapter 7 bankruptcy only if they meet certain qualifications. To discharge such a debt, the debt must be at least three years old on the date of filing the bankruptcy, and a person has to have filed their tax returns for at least two years prior to filing the bankruptcy. The IRS debt has to have been assessed at least eight months prior to filing the bankruptcy.
- Chapter 13. In Chapter 13, the debt owed to the IRS can be treated as a priority debt or as an unsecured debt. If the debt is less than three years old or the returns were filed less than two years prior, the debt will be treated as a priority debt and will be paid in full through the plan. Should the IRS debt be more than three years old and the returns at least two years old, the debt will be treated as unsecured. Should there be a combination of debts (say, debts owed for a period of the last five years), the debt that is three years old or less will be treated as priority debt, and the remainder will be treated as unsecured.
Contact Us Today
At Bradford Law Offices, we have dealt with the IRS for more than two decades. We can work with you to get the best resolution of your IRS debt. It may be that bankruptcy is not the best way to deal with your debt. There are other options available to you, and we can walk you through the options. If bankruptcy is your best choice, we can answer your questions about bankruptcy and work with you to determine which type of bankruptcy best fits your situation.
Call us today at (919) 758-8879 or contact us online so we can give you answers to your questions and bring you peace of mind. We look forward to hearing from you soon and helping you get back on your feet.