5 Reasons To Use Bankruptcy To Pay Tax Debts

bankruptcy to pay tax debtsAt Hinkle Law, we have helped many clients set up favorable repayment plans of taxes owed to the IRS and the West Virginia State Tax Department. This means, you can use your bankruptcy to pay tax debts!

It is important to note that most taxes cannot be discharged, or forgiven, in a bankruptcy. This means, that in order to deal with your unpaid taxes, you need to set up a repayment plan. In most cases, the IRS or the State of West Virginia will allow you to set up repayment plans with them directly outside of bankruptcy laws. However, there are some huge advantages to repaying your past-due taxes in a bankruptcy.

Here are a few of the most important:

1. No Penalties or Interest: This has to be the biggest advantage to paying your taxes back through a Chapter 13 Bankruptcy. Outside of bankruptcy, you can get buried in the penalties and interest that are tacked onto past-due taxes. However, while in bankruptcy, interest and/or penalties can be stopped and, in most cases, all you pay back is the tax itself. This can be a huge savings.

2. Five Year Repayment Plans: Outside of bankruptcy, most tax authorities will only allow you up to three years to repay taxes. In a Chapter 13 Bankruptcy, you can spread the payments over a five year period of time. This results in a much lower monthly payment.

3. Discharge of Certain Taxes: Some taxes can be discharged, or forgiven, in bankruptcy. In Chapter 13, this may substantially reduce the amount of taxes that you would be required to repay over the five year term. Outside of bankruptcy, you would have to pay back all taxes owed.

4. Reduction of Other Debts: Most of my clients who have unpaid tax debts are also struggling with other bills such as credit cards and medical debt. In a Chapter 13, yo may be able to substantially reduce the amount that your are paying on those types of debts. This will allow you to free up additional cash flow to repay your taxes.

5. Protection from Levy/Garnishment: While you are in bankruptcy, your are protected from actions by the IRS or the State of West Virginia to keep your tax refunds and/or to garnish your wages or bank accounts.

If you are struggling with taxes and other debts, call us to find out your options. As always, our initial consultations are free so you have nothing to lose.