Bankruptcy

We have helped clients eliminate their tax debt by filing for bankruptcy. Under certain circumstances, bankruptcy can be the most effective way to eliminate a taxpayer's tax debts. However, the bankruptcy laws have changed (effective October 17, 2005) to narrow the circumstances under which tax debt may be eliminated. Under the new law, in general, tax debts may be eliminated but only if all the following conditions have been met:

• The due date for the filing of the tax return is more than 3 years from the date of filing of the bankruptcy case,
• all the tax returns due have been filed, and
• the returns have not be fraudulently filed, and the taxpayer did not willfully attempt to evade the tax.

Generally, in a bankruptcy proceeding, the IRS becomes just another creditor and has to accept the ruling of the bankruptcy court. Thus a taxpayer can be relieved of his or her tax liability without having to negotiate with the IRS. In addition, filing for bankruptcy can lead to discharging your tax debts as well as other (such as consumer) debts. This can give you a fresh start financially. However, it is important to consult an experienced affordable tax attorney as the rules are quite complicated for determining if and when a taxpayer can be relieved of an income tax liability through a filing for bankruptcy.

While in some cases bankruptcy should be considered, you should be aware that there are alternatives to eliminating income tax debts through bankruptcy, and these should be explored before bankruptcy is attempted. One such alternative is an Offer in Compromise which is a program available through the IRS. In some cases an Offer in Compromise may be effective in eliminating or reducing income tax liability, may be less expensive to pursue, and may lead to fewer adverse effects on your credit or financial position. An experienced low-cost tax attorney can explain these choices and be very helpful in advising you which is the best course of action in your particular situation.

This is how we can help you:

• Explain the various alternatives and help you choose the most effective course of action to eliminate your tax debt,
• If bankruptcy is the best option, prepare and file your bankruptcy petition and represent you in all the bankruptcy proceedings, and
• Represent you in settling any tax debt that is not eliminated in bankruptcy.

You should be aware that there is legislation that goes into effect on October 17, 2005 that makes it extremely more difficult to discharge any tax debt through bankruptcy. Therefore, if you are considering bankruptcy, or bankruptcy would be an effective method of relieving you of all or some of your debt, you should consult with an attorney as soon as possible.