Filing Bankruptcy on Back Taxes

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.

Factors of Installment Payment Amounts

What determines your tax installment payment amount? Several factors come to mind. Since every person has a unique financial situation, their tax payment terms are also unique. Lucky for all of us, the government doesn’t require a flat monthly amount for its installment agreements. Here is a look at some of the determinants for installment payments.

  • Current earnings: The more money you make, the more you will have to pay each month. At least, that’s the basic theory. If your current income is high and stable, you probably won’t get away with $20 monthly payments.
  • Current debts: The IRS will consider your bills and other debts to see how much disposable income you could reasonably pay towards your taxes. In essence, they will calculate a debt to income ratio and go from there.
  • Seasonal earnings: If you happen to earn more money during certain parts of the year than others, it factor into your overall payment plan. You won’t be required to pay more at that time. You’ll just have to pay more on average.

Talk to a tax professional about the installments you think you can afford, and he or she will work out the most reasonable plan for your current financial situation.