Arizona Tax Lawyer Blog

Should bankruptcy be considered a last resort in dealing with IRS debt? In my opinion, yes.

It should however, always be carefully considered.

The potential benefits of a bankruptcy can be undeniable in relation to a taxpayer's potentially less effective options.

Having said that, bankruptcy does have some obvious negatives for the taxpayer with serious income tax debt. The more common are as follows:

1. Bankruptcy Costs Money

There is the attorney who is analyzing your case and representing you, the court who wants to be paid something i.e filing fees, the trustee takes 10% of non exempt assets in a chapter 7 and amounts paid in a chapter 13.

Also, what about lost wages due to time spent in preparing and cooperating, lost sleep and stress (does that cost money?) etc. etc.

2. Filing Gives The IRS More Time to Collect the Tax

What? If I file bankruptcy, the IRS will have more time to collect after the bankruptcy is over. But, I thought the bankruptcy would deal with the debt i.e. wipe it away?

It will if the debt meets certain criteria. But what if...

- the statute of limitations on collection that bars the IRS from collecting tax debt after 10 years is about to run out? Would it be wise to file a bankruptcy and stop that clock from ticking to deal with that same tax debt? Probably not. (There are some limited circumstances where it would make sense)

3. Credit Report

Bankruptcy does damage what otherwise was a good credit score. It typically comes back with time and some work, but nonetheless...the tax debt must be serious, with no other way out, to justify the hit.

4. Stigma

The "stigma" of bankruptcy has been diminishing over the years. Many consider this a good thing. You know..."stick it to the man" and all of that jazz.

I think that certain "stigmas" have their place.

The bankruptcy stigma can be especially harsh. For the rest of your life, if asked formally, you will have to answer yes. For some, this is reason enough to probe every other legal option before bankruptcy is used.

If you have a serious tax debt, call me, Arizona Tax Lawyer, Michael S. Anderson to talk about what the other options might be for you. 480 507 5985