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Bankruptcy and Filing Taxes
One of the frequently asked questions we receive is about bankruptcy and filing taxes and usually is something like “Can I clear all taxes owed with a bankruptcy filing”?
#1. Pay a penalty fee and pay interest.
The IRS can give penalty fees for failing to file and failing to pay. On top of the penalty for not filing, failing to pay taxes can incur an interest fee.
#2. Get notices from the IRS in the mail.
The IRS will always reach out to you via mail first. (Not by some phone scam!) Be sure and answer any summons and do not hide or throw the letter away. They really want to work with you to get you back on track.
#3. Forfeit any refund you might have coming.
If you have not filed for a while – and are not making that much income – the IRS may well owe you money! However, if you do not file and they think you owe them on other years, they can take your refund to pay the bill.
#4. Forfeit your Social Security.
Although the IRS is not allowed to interfere with your ability to earn money, nor can they take your work tools, nor can they appropriate certain benefits like those paid to your children – they can and will seize your Social Security.
#5. You can be subject to a federal tax lien.
The IRS can place a legal claim to you property through your employer, landlord, creditors etc.
#6. Hurt your credit report.
Any debt owed to the IRS can show up on your credit report.
#7. The IRS can levy (seize) your property.
Although they ‘should’ restrict any actions that might appear to make life ‘unlivable’, the IRS can and will seize houses, cars etc. to pay off a tax bill.
#8. Receive a summons to appear.
The IRS can summon you – or anyone who is related to your case to appear before them to testify as they make their case.
#9. Force you to declare bankruptcy.
Many of the people caught in this trap are those who have not paid taxes to use the money to ‘stay above water’. That means they are probably behind on everything else as well – mortgages, credit cards, and other bills. Although a bankruptcy filing can help with all of this – including some tax debt – it is not the best solution by any means.
#10. You could serve jail time.
Jail is a possibility although seldom used by the IRS. Usually the IRS will seek punishment for those hiding significant sums or blatantly criminal.
Before you get to any of these steps, call us as we are experts in cases involving bankruptcy and filing taxes. The best thing to do is use professional help to reach out to the IRS and work out a solution. Often the issue is nowhere near the level of hardship many imagine it to be.
Contact New Mexico Financial Law Today for a Free Initial Bankruptcy Consultation!