How does bankruptcy affect my unpaid taxes?
First and foremost, if you are considering bankruptcy and have unpaid taxes, you must contact an attorney specializing in bankruptcies. The rules are complex, and before you rely on the possibility of a fresh start from a tax perspective you need advice from an experienced attorney.
Here are some basics-
- the tax liability must be three years or older according to the due date of the tax return including extensions
- tax returns (and not IRS subtitutes) had to be filed at least 24 months before bankruptcy filing, and
- 240 days must pass from the date of the assessment
Not all tax debts can be rolled up and tossed into the bankruptcy arena. Depending on which type of bankruptcy you file (Chapter 7 versus 13) will dictate how your taxes are handled. Notices of Federal Tax Lien survive the bankruptcy even if the underlying dollar amount is discharged. This can create some sticky issues down the road.
You do get an automatic stay (temporary stoppage) on collection proceedings when you file bankruptcy.
IRS hates bankruptcy. Not that this is a negotiation tactic, but the IRS aggressively attempts to negotiate tax debts before they get wrapped up in the bankruptcy drama. There are tax attorneys who specialize in back taxes, tax liens, etc. who argue that negotiating with the IRS is money-ahead compared to bankruptcy- we tend to agree.
Remember, if you are dealing with the IRS and have or are considering bankruptcy, you must inform the IRS.