Taxes and collection agencies – Is bankruptcy the solution?

Taxes and collection agencies – Is bankruptcy the solution?

Letter to “Ask Leon”

Dear Leon:
I am considering bankruptcy. I have debts of about $8,000 in the hands of collection agencies.
I also owe about $1,900 in taxes to the IRS.
The taxes I owe are about 2 years old and they are income taxes.
What are my options, how much does filing for bankruptcy cost and how do I get started with this proceedure. I appreciate
your time and help already.
Thank you,

Leon Says…

Dear Lance:
The fact that your $8,000 of various debts are now in the hands of collection agencies suggests that your credit is already so badly damaged that a bankruptcy won’t hurt it, and it also suggests that you simply can’t afford to pay back what you owe; therefore a bankruptcy case is something you should seriously consider. I assume that you are an honest person, and would pay the debts if you could afford to do so. That being said, if you can’t afford to pay the debts, then your options are to file bankruptcy and get it over with, or go on living as you presently are. An attorney will probably charge you around $500 to handle your bankruptcy, plus you have to pay a filing fee to the Federal Bankruptcy Court of $200. If that sounds like too much money, just remember that you can afford the bankruptcy case a whole lot easier than you can afford to pay the debts. Your taxes will not be dischargable in bankruptcy at this time. If you do file bankruptcy, I suggest that you contact the IRS after the bankruptcy is discharged, and ask them to set you up with a monthly installment payment agreement. The IRS should be willing to do this with a monthly payment that you can afford. The general rule is that bankruptcy will discharge an income tax if you filed a timely and honest return for that was due at least 3 years before the filing of the bankruptcy. Other very complex rules will apply, for example if you filed a late return, if there was a tax assessment, or if an offer in compromise was ever pending. Tax issues are a trap for the unwary, so a person really needs to get expert advice before seeking to discharge taxes.

By | 2012-10-09T06:08:58+00:00 October 9th, 2012|bankruptcy-faq, Financial|0 Comments

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