Non-Dischargeable Taxes: What Happens If I Cannot Afford to Pay My Tax Liability?

With taxes soon to be due this year on April 18, 2011, a lot of buyers are faced with this question: I know I owe a lot of funds to the Internal Income Service and/or California's Franchise Tax Board, and I know that it is non-dischargeable. How do I take care of it when I do not have any cash to pay for it?

As discussed previously (See Discharging Taxes in Bankruptcy), older taxes are typically dischargeable in bankruptcy. Nonetheless, this does not assist you if you owe income for the 2008, 2009, or 2010 tax years to the IRS or FTB. There are many possibilities obtainable to you if you owe cash for these tax years.

Installment Payments

If you owe revenue to the IRS or FTB, but you do not have sufficient cash to spend the entire quantity at 1 time, 1 of the solutions offered is to set up installment payments with the taxing authority. Be conscious, this does not stop the penalties and interest from accruing on the quantity of taxes owed. This just indicates that the taxing authority is allowing you to make installment payments. Each taxing authorities offer a maximum of 60 months (5 years) to spend off your tax liability. Give-in-Compromise (OIC)

If you are at the moment unable to pay your tax liability, and you know you won't be in a position to spend in the close to future, you might possibly be eligible for an Offer you in Compromise from the IRS and/or FTB. An OIC Program allows you to pay less than what you owe if you can prove that the provide is the top that you can do based on your circumstances. Everyone's circumstance is several, so the evaluation of whether or not you qualify for an OIC differs from individual to individual. Both the IRS and the FTB require the taxpayer to complete forms and return to them in order to be regarded as for the OIC Plan.

Chapter 13 Bankruptcy

If you are unable to spend the taxing authorities the full amount of your tax liability, a different alternative to take into consideration is filing a Chapter 13 bankruptcy to pay off your debt through a Chapter 13 program. Chapter 13s can last either three years (36 months) or 5 years (60 months). The bankruptcy selection is a excellent concept in particular if you owe other debt, such as unsecured debts like credit cards, medical bills and individual loans. You would have to have to pay 100% of the non-dischargeable portion of the tax liability for the reason that the taxing authorities are deemed unsecured priority creditors, but unsecured creditors receive from % to 100% of their debt depending on your circumstances. One of the positive aspects of filing a Chapter 13 plan to spend your tax liability is the reality that only the actual tax liability is priority. Penalties and interest are not accrued on your account as you are paying off the debt in your Chapter 13 program. This could potentially save you a lot of dollars! The penalties and interest are dischargeable and treated the very same as all other unsecured creditors.

To identify if filing a Chapter 13 bankruptcy is the most effective choice for you in your circumstances, it is advisable that you seek the advice of an knowledgeable bankruptcy attorney in your region.