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Since 2016 has just been rung in, it will not be long before tax season descends upon people in Nevada and across the nation. Although this time of year is hardly one of celebration for most, it is especially trying for those struggling to pay back taxes. Persons in this situation may wonder whether bankruptcy would offer a way out of their problems. However, the answer to this question is complicated, as it relies on several factors.
Tax debt is not treated like other types of debt under the bankruptcy laws. In determining whether it may be discharged, tax debt for each year is considered separately. Generally, tax debt may be discharged if four items are met:
Tax debts that meet these four criteria may be eligible to be discharged in bankruptcy. Once discharged, the bankruptcy filer is no longer under any obligation to repay the debt.
However, bankruptcy may be able to help those whose tax debt does not meet the criteria to receive a discharge. If the tax debt is only a small part of a person’s debts, filing Chapter 7 bankruptcy can be useful. This type of bankruptcy works by eliminating credit cards, medical bills and most unsecured debts. This can free up financial resources and allow the filer to more easily pay down the tax debt.
On the other hand, if the tax debt is large, Chapter 13 bankruptcy may be useful. Although it cannot discharge tax debts, Chapter 13 can help by allowing filers to include their tax debts in the payment plan. The payment plan allows filers 3-5 years to pay off their tax debts in affordable monthly installments. As long as filers keep up with their monthly payments, they are protected against IRS garnishment or other collection attempts.
Although bankruptcy is a powerful tool, when it comes to tax debt, it may or may not be an effective solution for you. To learn more about whether bankruptcy is the right choice, persons with overdue tax debts are well advised to consult with an experienced bankruptcy attorney.
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