Back taxes in bankruptcy: Part 2

The last post, I discussed about discharging your back taxes in bankruptcy.  This post, I will discuss what to do if you can’t discharge your taxes.

If you have non-dischargeable taxes and can’t pay them back, you many want to file a chapter 7 and negotiate a repayment arrangement with the taxing authorities.  This works well if you have very large tax debts or very small tax debts.  Generally, the taxing authorities want the back taxes paid off in 2 years.  If the tax debt is huge and not payable in 2 years, the taxing authorities will accept payments plans longer than 2 years.  In bankruptcy, you would have to pay the taxes within 5 years.

The other option would be to file chapter 13 and use your bankruptcy plan to pay back the non-dischargeable taxes.  You would pay the non-dischargeable taxes at the IRS interest rate (currently around 5%) over 3 to 5 years.  The advantage to doing it in the plan is that the bankruptcy court will establish the payment plan and you won’t have to pay the penalties and late fees (the penalties and late fees are dischargeable).  If you choose this option, the important thing is not to fall behind on your taxes again.  The chapter 13 only pays your back taxes, current taxes are still your responsibility.

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