Q: I would like to know if we could file bankruptcy against IRS back taxes. I really don’t know if we should file bankruptcy or consolidate our debt.
A: You can try to erase your tax debt in bankruptcy, but it’s not as easy as just filing. There are some hoops you have to jump through, making it difficult to get rid of that debt.
You should consult a bankruptcy attorney to determine if your federal tax debt could be eliminated.
Additionally, you should contact the IRS
and see how best to handle your debt. You may be surprised to find that a
payment plan could work. I know it’s a scary thought to contact the IRS, but you do have options other than bankruptcy, considering it’s likely the debt wouldn’t be wiped out anyway.
You don’t need a consolidation loan for the IRS debt. You can work out a payment plan directly with the IRS
that allows you to pay your full tax obligation in equal monthly
payments. The amount of your installment payments and the number you
make will be based on the amount you owe and your ability to pay. I
should note that the IRS charges interest and
penalties on the unpaid portion of the debt. There is a set up fee of
$52 for direct debit agreements and $105 for non-direct debit
Setting up a payment plan for $25,000 or less in tax is fairly easy.
If you owe more than $25,000, you can still set up an installment
agreement, but the IRS may also ask for financial information to help determine your ability to pay.
If you are uneasy about doing this online, call the number on your IRS bill or notice. Most importantly, don’t ignore this debt.