Taxes are already a headache, and not paying them on time will only turn that headache into a migraine. The IRS has almost unlimited authority when it comes to enforcing tax collection, which can include harsh measures such as wage garnishment, asset seizure, and liens on your home and car.
Fortunately, there are ways to circumvent the punitive measures that come with missing your tax payments. The IRS is often willing to work with people to settle their tax debts. If you want to have your taxes forgiven successfully, it is essential to have knowledgeable attorneys that can guide you through the hurdles of the process, so that you can come out of the experience financially unscathed.
How to Qualify for Tax Forgiveness
There are numerous ways to settle your tax debts; one of those ways is bankruptcy. This process is an often-misunderstood practice that can provide real relief to debtors. To qualify, however, you have to meet the following requirements:
- Your debt must be at least three years old.
- The IRS must have assessed your debt eight months before you file for bankruptcy.
- The tax return connected with your debt must have been on file for two years or more.
If you meet all three of these requirements, then you have a strong case to discharge your tax debt through bankruptcy. This scenario is especially promising if you have documented evidence to prove your claims. The next step is to consult an attorney to find which tax debt relief solution works best for you.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is among the simplest and most straightforward ways to earn tax forgiveness; the debtor surrenders some of their assets and property in exchange for debt relief. A trustee is assigned to sell some of your assets so that they can be used to pay off the creditors and debt collectors.
Most of the time, however, even non-exempt assets are not sold. According to ProPublica, 96 percent of Chapter 7 bankruptcies are resolved without debtors losing their assets. This resolution typically happens when all the possessions are exempt, or they are not considered worth the trouble of selling.
Chapter 11 Bankruptcy
Like Chapter 13 (described below), Chapter 11 bankruptcy focuses on reorganization. The process starts with a petition to the bankruptcy court, and the debtor files information related to their assets, liabilities, income, leases, and financial affairs. During this time, the debtor remains in control of their assets.
While Chapter 11 bankruptcy offers flexibility, it is one of the less successful options. The rules and requirements are complex, and it is among the most expensive forms of bankruptcy to the debtor. According to the Notre Dame Law Review, roughly 10 percent of Chapter 11 filings succeed.
Chapter 13 Bankruptcy
If you do not qualify for Chapter 7, then Chapter 13 is a reasonable secondary option. In this case, debtors enter into a repayment plan, which typically lasts three to five years. The debtor will propose the program and how they anticipate making payments to absolve their debts.
Of course, you can’t propose just anything when it comes to a plan. Every proposal must pass two tests:
- The first is that the creditor gets paid at least as much as they would receive had you filed Chapter 13. This requirement is called the best-interest test.
- The second is the “best-efforts” test. It states that a debtor must pay all disposable income to the creditor or collector for at least three years. The income taken is after the debtor pays for all reasonable living expenses.
Other Ways to Get Rid of Tax Debt
There are ways other than bankruptcy to receive tax forgiveness; these other methods often require technical tax expertise, however. If you decide one of these following options sounds best for you, make sure to have an industry expert on your side.
- Innocent Spouse Relief – Under certain circumstances, you can file for innocent spouse relief. Typically, this happens when one spouse makes an error on a joint tax return. For instance, one spouse may underreport income or inflate deductions.
- Installment Plan – You can set up a full or partial installment agreement with the IRS. The length of the plan will dictate how much you pay in monthly installments and the terms. A knowledgeable tax forgiveness attorney can help negotiate the lowest possible payments on your behalf.
- Compromise – The IRS may allow you to settle your debts for less than what you owe. You can likely reach a compromise through a lump-sum or short-term payment plan. This option is ideal if you have no reasonable way of paying off your debts.
Learn More About Tax Forgiveness
Get out from under crippling debts with tax forgiveness. Work with the best defense team possible with Knoxville Bankruptcy Attorney —they will proactively represent your best interests in the courtroom and during negotiations. Discover the difference they can make by setting up a consultation today at 865-276-8109.