Another Tax Bankruptcy

Today TaxMama hears from Toni in Colorado with this problem. “We filed for bankruptcy after a foreclosure and two years of hard struggle. My husband had $48,000 in taxes for 2005. Is there a way to file ‘’tax bankruptcy’’ this far out? Our bankruptcy was discharged March 12, 2008. I’m working, my husband is not, and we barely get by on just one salary.”

TaxMama answers Tax Questions

Dear Toni,

Sometimes, you just have no choice – the overall burdens become overwhelming.
http://taxmama.wpengine.com/AskTaxMama/169/bk.html

OK, what can you do with the remainder of the tax debt? It sounds as if the debt was too new when you filed your recent BK. http://www.taxmama.com/AskTaxMama/308/article2.html

Go back and talk to your attorney. I don’t know what section of the BK code you originally filed under. But I have seen attorneys file under Section 13 initially, then go back a couple of years later with a Section 7 filing – and discharge all the rest of the tax debt. It’s a deliberate strategy in a case like yours. If your attorney was smart, s/he set it up that way.

Be aware, though. Every time you file for BK, you stop the clock on the IRS 10-year statute of limitations for collections. (In other words, IRS generally has 10 years to collect tax debt.) Stopping the clock means, time is suspended while you are in bankruptcy, Tax Court and other situations. So all the time gets added to the original 10 years.

Incidentally, another option you may have right now is to file for an Offer in Compromise. If your income isn’t high – and your husband isn’t working, you may qualify to reduce your debt. Try that. http://www.irs.gov/pub/irs-pdf/f656.pdf

And remember, you can find answers to all kinds of questions about tax bankruptcies and other tax issues, free. Where? Where else? At TaxMama.com

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