Many Tennessee residents turn to bankruptcy to alleviate overwhelming debt, particularly credit card debt. Many others think bankruptcy will help them dissolve debt caused by tax liabilities. However, using bankruptcy to get rid of tax problems can actually create even more problems.
As the saying goes, taxes are one of life’s certainties. Taxes are a problem that just doesn’t go away even when a person files for bankruptcy. This is because a tax lien attaches to a person’s assets, especially the home. It stays there until it is paid or until a long duration of time has passed. Even bankruptcy can’t wipe it out.
If a person is liable for the tax debt in any way, then it cannot be discharged. When a person files for bankruptcy, the collection of the tax is suspended by the IRS for a period of time. However, a bankruptcy also triggers scrutiny and renewed interest by the IRS. This can lead to liens against other types of property.
When a person is unable to pay tax liability due to financial challenges, it’s important to contact the IRS and make other arrangements. An installment agreement or offer in compromise is much better than opting for Chapter 7 bankruptcy or avoiding tax payment altogether.
Chapter 7 bankruptcy is not always a quick and easy solution to debt problems. Although it will erase most debts and start people out with a clean slate, it will also lower a credit score dramatically and make loans difficult to come by. Plus, many people are unable to get their money problems under control even after a bankruptcy filing, causing subsequent bankruptcies to occur. Bankruptcy is a valid option in many cases, but any Tennessee resident considering this option needs to weigh the pros and cons.
Source: Chicago Tribune, “Why Bankruptcy Is Rarely If Ever An Effective Means Of Dealing With A Tax Liability,” Stephen J. Dunn, Nov. 2, 2013