When tax debt becomes overwhelming, it is normal to seek out an all-inclusive solution. For some people, that solution comes in the form of bankruptcy. Bankruptcy is a form of debt relief that essentially wipes the slate clean, giving you a fresh financial start. However, it comes with some serious consequences.
Before you commit to filing bankruptcy for your taxes, keep in mind that your credit will be affected for years. It will be difficult to get a loan for a car, a house, or anything else you may want, because banks will not trust your ability to repay them. In addition, filing for bankruptcy will prevent you from filing again for seven years. If you accrue additional tax debt in that time, you’ll have to pay it no matter what.
Most states require you to wait a certain length of time before including taxes in your bankruptcy. That time frame is typically three years. If you want to discharge tax debt from this past year, you’re going to have to wait a while. In the meantime, you will still have to make payments to the government to remain in good standing. Otherwise, you could face serious penalties.
Why go through the hassle when there are other solutions available to you? Find a tax resolution that works and pay off what you can. You will feel more accomplished this way, and you will be able to maintain your credit score. Bankruptcy should always be considered the last resort.