IRS Tax Debt — Is Chapter 13 or Chapter 7 the best option?
Our office recently had a Debtor come in wanting to file a Chapter 13 on the IRS debt that he has. The year the tax return was supposed to be filed was in 2000. He didn’t file the return until 2005. The way that the law reads is that the debt is considered a priority debt through a Chapter 13 plan if the debt falls within three years of the tax return being filed. Since this Debtor did not file his return in 2000, but in 2005, he is required to pay the debt back to the IRS. If he had filed his return on time, then the debt would now be considered unsecured priority and he wouldn’t have to pay the debt back. Due to the high interest and penalties that the IRS charges to delinquent taxpayers, he now owes around $150,000 to the IRS. The best way for this Debtor to go is to actually wait until next April to file his bankruptcy so that he doesn’t have to pay the IRS as priority, but as unsecured priority.
If you are a Debtor who plans to file a Chapter 7 and you have IRS debt, you may want to reconsider and file a Chapter 13 bankruptcy to help repay the debt and get a discharge that way. If you file for Chapter 7 bankruptcy, then you will still be required to pay that debt back and may end up owing the IRS for the rest of your life. Consult with your bankruptcy attorney to make sure that you are in the right bankruptcy for your situation if you owe the IRS.
Please fill out our free evaluation form to determine if bankruptcy is right for you.
