If your IRS Problems have grown to the point that you are considering filing for bankruptcy, how do you proceed? You must do your research and see how bankruptcy will affect you and your family in the future. Since there are two types of bankruptcy, you must decide which one will work the best for you.

Types of Bankruptcy

Chapter 7: Liquidation bankruptcy. This is the liquidation of your debts, both non-exempt and dischargeable. Most or all of your income tax debts could be wiped out if they are over three years old. Recent taxes will not be affected.

Chapter 11, 12, or 13: Repayment plan bankruptcy. These allow you to pay your debts over an extended period of time. Each has its own specific deadline for the taxes to be paid and when that is done, you will have paid your entire tax bill off.

Disadvantages to Bankruptcy

There are several negative aspects you need to look at before making a decision regarding bankruptcy. One of which is that you can still owe taxes when you reach the end of your bankruptcy term. This means the IRS is given extra time to collect these taxes from you. The statute of limitations left on your tax bills is extended to include whatever time remains on the original ten years plus the time your bankruptcy case was pending plus 180 days.

Another point to consider is how bankruptcy will affect your credit rating. Bankruptcy remains on your credit record for up to ten years and is public record. This might make it harder for you to rent an apartment or to obtain a credit card, especially one offering a good interest rate. You may find it more difficult to obtain a mortgage loan or insurance also. Bankruptcy will indicate to many lenders that you have had difficulty repaying your debts and may refuse to extend credit to you.

Another Consideration

If your only significant debt is to the IRS, you may want to find another way out of your back tax situation that will not affect you and your family’s lifestyle as much as filing for bankruptcy would. Just the fact that you will have the stigma of bankruptcy over your head for up to ten years is enough to reconsider. On the other hand, if your IRS debts are considerable and could be discharged in a bankruptcy, it might just be an option to consider.