No, it will not. Many taxpayers think bankruptcy is the magic answer to wiping their tax debt slate clean. But the truth of the matter is that few people qualify to have their debt removed through bankruptcy. In fact, bankruptcy may worsen your situation by extending the amount of time the IRS has to collect on your tax debt and increasing the amount you owe!



Three rules for having tax debt removed through bankruptcy: If none of these rules apply to you, you do not qualify for having your tax debt removed through bankruptcy.

1. The tax year must be 3 years old or older prior to filing bankruptcy.
2. The original tax return must be on file; Substitute for Returns (SFRs) are NEVER discharged.
3. The debt must be filed AND accessed (processed in IRS computers) more than 24 months prior to filing for bankruptcy.
   

Quick facts about bankruptcy and your IRS debt:

• Filing for bankruptcy will stop the IRS from filing a tax lien or using any collection actions against you.
• If a tax lien is already in place, there's no getting rid of it until the debt is paid in full. 
• BUT, the penalties and interest are still accruing in the background, making your tax debt climb higher and higher as the months pass. 
• Bankruptcy extends the amount of time the IRS has to collect on your debt (statute of limitations). For example, if your file a Chapter 13 bankruptcy, you are extending your IRS statues by five years! 
• After bankruptcy, your IRS tax debt still stands, and it's larger than ever. You may have been paying a "pennies on the dollar" amount for a while, but it's not higher than the IRS interest rate.
  


If you’re going through bankruptcy now and need to resolve your tax debt:



It's hard to work with the bankruptcy AND IRS authorities to resolve your tax debt. If you're in bankruptcy now and need to resolve your tax debt, you're going to need professional help!

A better solution is to find a way to pay the tax debt in full. If you can’t do this, investigate other options that are available. But if you use bankruptcy to attempt to “erase” your tax debt, you will wind up with a larger tax debt issue merely a few years later. And the IRS will have more time on their clock to collect it!

Learn more about what you should do if you can’t afford to pay your taxes. You can also get a free tax consultation to resolve delinquent tax debt today!