If you have a large amount of other debt besides just tax debt, bankruptcy may be an option you end up considering. Is this the right thing to do when you have tax liabilities?
For some people, bankruptcy can be the right way to go. While bankruptcy will not erase most tax debt, the bankruptcy court determines what you pay each creditor, and may remove some of the penalties and interest, depending on the case.
The interest rate that the IRS charges, to be honest, isn’t that bad. The rate is adjusted several times per year, and it currently sits at 4%. What kills people are actually the penalties. It is not uncommon for tax debtors to max out all their penalties, which tacks on a whopping 45.5% to their principal, and THEN interest accrues on the whole thing.
To determine whether bankruptcy is the best route for you, you should consult with a bankruptcy attorney. If all you have is IRS debt, and don’t have significant other creditors and/or don’t want the bad credit associated with bankruptcy, but you cannot otherwise go on a monthly payment plan, then consider an Offer in Compromise with the IRS. It’s a good non-bankruptcy alternative for folks that might otherwise have no other choice but to file Chapter 7, but would only be filing chapter 7 because of their IRS debt.
If you do choose to file for bankruptcy, it’s important to have … Read the rest