With April 15th come and gone, most of us are breathing a big sigh of relief. But for some folks – the ones in debt to Uncle Sam - it's a year-round nightmare.
My parents dealt with this a few years ago. Because they own a small business, their own taxes are increasingly complicated—and they unwittingly made an error on their return for which they were seriously penalized. Fortunately, they were able to scrap together enough to pay, if a little late. But not everyone is so lucky. What if all your money is tied up in other debts? What if you’re living paycheck to paycheck as it is? As if surviving the recession while dealing with creditors isn't bad enough, now you’ve got the IRS calling.
Don’t worry – they can’t send you to jail for not having enough money (though you can definitely get jail time for not filing!). But the longer you go without paying, the more interest you’ll end up owing. And the IRS sees nothing wrong with snatching the money right from your bank account, leaving you unable to pay your other bills.
Fortunately, there are ways out. I’ve mentioned the benefits of Chapter 13 bankruptcy plenty of times on this blog –it’s your surest bet to keep your home, it’s your Constitutional right, it will lower your credit card payments while offering you protection from creditors. What’s not to love, right? But it gets even better. Both Chapter 13 and Chapter 7 bankruptcy can kill two birds with one stone. Not only can bankruptcy save you from credit card debt, but it can also—under certain circumstances—save you from the clutches of IRS debt.
You might be able to discharge your tax debt if it meets the following criteria:
· The due date for filing the tax return concerning the debt is
at least three years old.
· The return was filed at least two years ago.
· The tax assessment is at least 240 days old.
· Your tax return was not fraudulent (this is pretty straightforward)
· You’re not guilty of tax evasion (again, kind of a given).
As you can see, filing for your taxes not only keeps you out of jail (for tax evasion, anyway) but is also one of the criteria for discharge. The IRS is the agency everybody loves to hate, but they will usually work with you if you are cooperative.
Of course, whether bankruptcy is right for you depends on you individual situation. For that reason, it’s best to seek professional advice before proceeding. Here at DebtStoppers, we can answer your financial queries for free. All you have to do is sign up for our personal debt analysis. Not only can we help you with that IRS debt, but we’ll show you how you can clear all your debts. When you’re free and clear, tax time might still be a hassle—but it won’t feel like the end of the world.
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