Bankruptcy, as known to most of the citizens of UnitedStates, is a situation when a person is not in a position to clear off the debts and as a result has appealed to the court to relieve those debts. When a person files bankruptcy, the debts that he or the were having are waived off. These debts can include credit card bills, utility payments and any other unsecured loans.
When it filed during IRS tax debts, it acts as tax bankruptcy.While filing for a tax bankruptcy, one must consider the effects that it would have on the financial position. After filing a bankruptcy, the credit rating goes down and its effects stay for a longer period. Once the bankruptcy has been sought, it would prove to difficult for you to acquire loans, credit, mortgage and other finances. Another important thing while applying for this option is to remember that it will not solve all your tax problems. This is perhaps the last step that taxpayers should consider when finding a solution for their tax debts.
Basically, there are two types of bankruptcies that you can go for; in the first type, all your debts are liquidated and you are totally debt free whereas in the other type of bankruptcy some debts have to be settled by you and the rest amount is waived off. In order to be eligible for filing a tax bankruptcy, there are some criteria that taxpayers must meet:
- Before you file for a tax bankruptcy, the deadline of your tax return should be 3 years old at least.
- The last tax return that you filed should be more than 2 years old before you go ahead with a tax bankruptcy.
- The previous tax assessment should be at least 240 days older.
- You shouldn’t have any fraudulent tax return record associated in all years of your tax filing.
- You should not be guilty of tax evasion.
Tax bankruptcy is a complicated procedure which can prove to be harmful if not done accurately. If you want to apply for a tax bankruptcy and are not sure about what is to be done, consulting an IRS tax lawyer is recommended.