When Bankruptcy Isn’t the Final Answer to IRS Tax Debt
While Chapter 7 or Chapter 13 bankruptcy can help relieve some IRS tax debt, it isn’t always the perfect solution. Bankruptcy may leave taxpayers with residual tax debt, especially when recent taxes, payroll taxes, or fraud-related tax debts are involved. IRS tax debt can lead to serious consequences, including liens, garnishments, and levies, which can make life very difficult. Dedicated bankruptcy attorneys in The Woodlands, Houston, Katy, and College Station can help explore options when bankruptcy alone is insufficient.
Understanding the Limitations of Bankruptcy for IRS Tax Debt
While bankruptcy offers immediate relief, certain IRS tax debts are not dischargeable. For instance, recent tax debts, payroll taxes, and fraud penalties remain due even after Chapter 7. To qualify for tax discharge in Chapter 7, the tax debt must meet specific criteria: it must be over three years old, filed at least two years ago, and assessed at least 240 days before filing. If these rules aren’t met, you could still be responsible for a portion of your tax debt after bankruptcy.
When Bankruptcy Leaves Tax Debt: Exploring Additional Options
In cases where bankruptcy does not eliminate all IRS debt, post-bankruptcy options such as IRS installment plans or settlement programs can help. Combining bankruptcy with IRS debt management tools can provide a more complete solution. For example, a hypothetical client who used Chapter 7 to eliminate unsecured debt may still need to resolve tax debt. By enrolling in an Offer in Compromise or an installment plan, they could reduce or manage their remaining debt effectively.
Offer in Compromise (OIC): Settling Tax Debt for Less Than You Owe
An Offer in Compromise allows you to negotiate with the IRS to pay less than the full amount of tax debt owed. Eligibility hinges on the taxpayer’s financial situation, including income, asset equity, and ability to pay. If granted, an OIC can be a game-changer for those carrying residual IRS debt after bankruptcy. Trusted bankruptcy lawyers in Houston can help assess eligibility for an OIC and guide you through the application process.
Installment Agreements: Paying Off IRS Tax Debt Over Time
IRS installment agreements allow taxpayers to repay tax debt gradually, avoiding drastic collection actions. Various installment agreements exist, from streamlined to partial-payment options, each tailored to different financial scenarios. For taxpayers left with manageable tax debt post-bankruptcy, an installment agreement can provide a feasible path to financial stability.
IRS Currently Not Collectible (CNC) Status: A Temporary Pause on Collections
Currently Not Collectible (CNC) status is a unique IRS designation that temporarily halts collection actions for those facing severe financial hardship. CNC status can be invaluable to individuals with remaining tax debt following bankruptcy, as it pauses IRS actions like levies and garnishments. While CNC doesn’t eliminate the debt, it provides relief, allowing time to recover financially.
Tax Lien Withdrawal or Subordination: Protecting Assets and Credit Ratings
Tax lien withdrawal removes a lien from public records, safeguarding your credit. This can be especially beneficial after bankruptcy, as it helps improve credit ratings. Tax lien subordination allows you to reduce the IRS’s claim priority, which can make qualifying for future loans easier. Dedicated bankruptcy attorneys can help you determine whether these options fit your post-bankruptcy strategy.
Innocent Spouse Relief: Addressing Shared Tax Liabilities in Divorce
Innocent Spouse Relief provides protection from tax liabilities incurred by a former spouse, ensuring one partner isn’t unfairly penalized for the other’s tax missteps. For individuals who underwent family law proceedings during bankruptcy or afterward, this relief can offer protection from joint liabilities and serve as a fresh start.
Why It’s Crucial to Act Swiftly on IRS Tax Debt After Bankruptcy
Ignoring IRS debt post-bankruptcy can lead to compounding penalties, interest, and additional collection actions. For some, a swift response can prevent escalation, protect assets, and minimize stress. By consulting trusted bankruptcy attorneys in Houston and The Woodlands, you can explore IRS programs to manage remaining tax debt and regain control.
Schedule an Initial Consultation
If you are ready to pursue a Texas Bankruptcy, or if you need IRS Debt Relief Lawyers to help with Tax Debt that can’t be removed in a Texas Bankruptcy, please contact Nick Davis Law to schedule a free case evaluation with a Bankruptcy Lawyer in The Woodlands, Bryan | College Station, Katy, Texas and Carrollton, Texas serving all of Texas with Chapter 7 & Chapter 11 representation including Brazos, Collin, Dallas, Denton, Ellis, Fort Bend, Grayson, Harris, Montgomery, Rockwall, and Tarrant counties to learn how we can help you.