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Include tax debt in bankruptcyMany Americans struggle to pay their federal taxes. Even though you know you have to pay taxes every year, you found it impossible. People may complain about student loans, credit cards, and rent or mortgage payments, but their tax debt can be just as much of a headache.

Bankruptcy has helped many people who found themselves unable to manage their debts, but if you are considering bankruptcy, you may have questions about your tax debt and whether or not that debt can be included.

What is bankruptcy?

Tax debt is just another financial burden that many Americans are looking to get rid of, making bankruptcy very attractive to those with ever-increasing debt. Bankruptcy is a legal process to eliminate or reduce a person's debt. There are several bankruptcy chapters available to individuals, but you will likely have a choice between Chapter 7 And Chapter 13 Bankruptcy when it comes to tax debt.

Each chapter will determine how much debt you owe, what types of debt they are, and how the debt will be reduced or canceled. For example, Chapter 7 will require the debtor's assets to be sold to repay debts. Chapter 13 requires debtors to repay all or part of the debt over three to five years. Depending on your financial situation, you might not even qualify for Chapter 7.

Can tax debt be included in bankruptcy?

Your main motivation for filing for bankruptcy may be to relieve yourself of any responsibility for your debts. You may have accumulated various debts over the years, but your tax debt may be the most overwhelming. Bankruptcy can provide you with the relief you need, but keep in mind that some debts cannot be discharged through bankruptcy. Fortunately, federal tax debt can be included in bankruptcy, so this could be the answer to your problems when you cannot afford to repay this debt.

Between the chapters or options available in bankruptcy, many consumers opt for Chapter 13. This specific chapter of bankruptcy has requirements, so not all taxpayers are eligible. You will want to make sure that you are what the The IRS considers an employee, self-employed person, or sole proprietor of a business.

Additionally, if you are considering filing Chapter 13, you will want to note a few things about filing your taxes.

  • Taxes must be filed annually during your bankruptcy.
  • Taxes must be filed annually within four days of your bankruptcy.
  • Taxes must be paid by the due date.

Should you declare bankruptcy?

Many people choose to file for bankruptcy when they cannot afford to repay their debts. Before opting for bankruptcy, you will need to have a clear vision of things. Consider evaluating your situation and financial situation, including your income, total debt, expenses, etc., to determine if you truly cannot afford to repay your debts.

Keep in mind that while filing for bankruptcy can eliminate or reduce a person's debt, its negative impacts should not be ignored. For example, filing for bankruptcy will affect your credit score and your ability to get new credit. Before filing for bankruptcy, consider the effects, how long they will last, and what plans you may have for your financial future that may need to be put on hold until you recover from bankruptcy.

Ultimately, it's up to you whether you want to file for bankruptcy. It's understandable that when your debt becomes overwhelming, you'll start thinking about the many ways you can get relief. If bankruptcy is the ideal solution for your situation, then you should become debt free within a few years.

Do you have questions about how bankruptcy can affect your credit or how you can recover quickly from bankruptcy? Schedule a free consultation with us today!

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