Bankruptcy is a very serious thing and you must not enter into the decision to file bankruptcy lightly. Bankruptcy has long-term negative impacts.
You will need to engage the services of a bankruptcy attorney in order to file a petition for bankruptcy. Filing bankruptcy is not something you can do on your own. The petition will include a statement of your debts and assets along with a list of all of your creditors.
There are two types of bankruptcy for you to consider before deciding which might be right for your circumstances.
Chapter 7 is liquidation bankruptcy. Under this arrangement, all your debt is liquidated, non-exempt and dischargeable, alike. Income Tax debt over three years old could be all or mostly erased. More recent tax debt cannot be included.
Chapter 11, 12, or 13 is repayment bankruptcy. Under this arrangement you are able to repay your debt during a lengthened amount of time. Your taxes must be repaid within a specific amount of time, just like the rest of your debt.
Many people think that tax debt cannot be discharged. Tax debt can be discharged, but such debt must meet stringent criteria to qualify for discharge.
Your income tax return for the year in which you are seeking to discharge your tax debt must have been filed a minimum of two years prior to your bankruptcy filing. Any income tax return filed more recently than two years will not meet the criteria to qualify for discharge.
The taxes you are looking to discharge must be at least three years old. Before you get confused, remember that you can file taxes late, that is what the proceeding paragraph addresses. So, in order to qualify for discharge, your overdue taxes must be owed from at least three years prior on a return filed no later than two years ago. So if you filed your 2005 income tax return in 2007 and you owed taxes, the dates would qualify you for a consideration of discharge, but there is other criteria to meet, as well.
The Internal Revenue Service must assess your tax debt 240 days before your bankruptcy filing.
Income taxes are the only taxes that can be discharged through bankruptcy. You cannot discharge unpaid payroll tax debt through bankruptcy.
Bankruptcy remains on your credit record for ten years.
If the major reason you are considering bankruptcy is due to tax debt, reconsider. You can usually work out a plan with the Internal Revenue Service to repay your debt over time. On the other hand, if your tax debt is substantial and you are certain it will be discharged in bankruptcy, it might be the right the thing to do.