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How Bankruptcy Can Stop IRS Collectors
By Darrin Mish of Law Offices of Darrin T. Mish, P.A.
How Bankruptcy Can Stop IRS Collectors Most people fall on financial hard times, regardless of the reasons. Although they may have to pay substantial sums of cash to creditors, the IRS may also feel that they, as well, must be settled on tax debts. And unlike other bill collectors, the IRS can be very ruthless in their efforts. The IRS can definitely ruin a taxpayer's life if they decide to pursue specific collection actions. What many people do not know is that filing for bankruptcy may allow them a degree of protection from most of the worst techniques employed by the IRS in their debt collection methods. Bankruptcy is normally misconstrued by taxpayers. It is seen as a simple method to escape from debts. This is not so. Bankruptcy was initially designed as a way that allows people to seek legal debt relief, and that includes tax debt relief. When you file for a Chapter 7 bankruptcy, there is a good chance that, along with all of your regular debts, your tax debt will also be cancelled. This can happen, but there is of course no guarantee that your tax debt will be considered. Anybody filing a Chapter 11, 12, or 13 bankruptcy has the ability to solve their IRS problem with a payment agreement. Filing for bankruptcy legally protects you from all actions made by the IRS and other creditors against you with an 'automatic stay'. Creditors applying to the bankruptcy court is the sole way for the automatic stay to be lifted. The lifting of an automatic stay rarely occurs, however. For an automatic stay to be lifted, the IRS and other creditors must be able to prove fraud in the bankruptcy claim. A more serious IRS problem is inevitable if fraud is found. Tax debts are merely frozen until the bankruptcy claim is dismissed or discharged. The statute of limitations is lengthened and resumed when bankruptcy is dismissed. The only form of bankruptcy that will clear any tax debts effectively is the Chapter 7 bankruptcy. For tax debts to be eligible for discharge in a Chapter 7 bankruptcy claim, certain conditions should be accomplished. For example, the 3-year rule should be satisfied during the bankruptcy proceeding. The 3-year rule says that any tax debts should come from a tax return that was filed no less than 3 years prior to the year you file for bankruptcy. Usually, this points to April 15 of the year that the return was really filed, but it also includes extensions. Taxes filed 2 years prior to bankruptcy is included in the 2-year rule. Taxes assessed 240 days prior to filing the bankruptcy claim is applied in the 240-day rule. If a tax lien was filed before filing bankruptcy, the IRS still has rights to the taxpayer's property, even by filing a Chapter 7 bankruptcy. The IRS uses this important loophole. The taxpayer essentially is bought time to settle the IRS problem by re-organization when a Chapter 11, 12, or 13 bankruptcy is filed. Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He also spends a great deal of time traveling the nation providing training to attorneys, CPAs and Enrolled Agents on how to handle their toughest cases with the IRS. If you would like more information about his services please visit http://getirshelp.com. |
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