Can't Pay! You can make Debt Vanish with a Bankruptcy! Is this true? No, it's not. If you file for Bankruptcy, your debt can grow! Penalties and interest don't stop accruing in the time it takes for a Bankruptcy to be approved. So watch out. Don't fall into this trap.
5 Common Bankruptcy Traps: Why Bankruptcy doesn't work for Tax Debt.
1. Having Money and Assets
If you have plenty of money in the bank to satisfy your debt, your money will be seized to satisfy your debt. You're not escaping the IRS if you have money to pay them. No matter what you try to do.
2. Filed Before?
If you filed under Chapters 7, 11, 12, or 13 and paid your unsecured creditors less than 70% of what you owed them, you cannot get another discharge.
3. Is it Fair?
You may try to file Bankruptcy although you can afford to pay the IRS in monthly installments. Your case for bankruptcy will be thoroughly examined. And if they find you have enough income to pay for your basic needs AND your debts, they won't allow the bankruptcy. Your Bankruptcy will be dismissed on Issues of Fairness and your IRS Debt will remain.
4. Secured Creditors
If a creditor has a right to take specific property to satisfy a debt, that creditor is secured. That means Tax Liens survive Bankruptcy. You either pay after Bankruptcy, or the IRS can repossess your property.
5. Fraudulent Transfers
People try to be slick. They often transfer money out of their account before Bankruptcy to improve their odds of it being discharged. You won't get away with it! The Bankruptcy code deems all transfers of money or property to friends, relatives, or business associates within one year of filing for Bankruptcy as fraudulent transfers. The Bankruptcy court can then seize property from the person who received it, and use it to pay your IRS Debt!
No Easy Way Out: If your financial situation is desperate, the IRS has a solution for you. You might qualify for a Hardship Plan. The Hardship plan would stop the IRS's relentless collections efforts for a few months, giving you time to get your finances in order. It won't be easy to convince the IRS you need the Hardship Plan. But you're better off trying any of the IRS's options then resorting to Bankruptcy.