Economic situations and personal issues turn out to be the marring factors that push people into financial doldrums. Most people, unless you were born with a silver spoon, face financial adversity at least once in their life time. However, don't expect the IRS to be sympathetic towards your situation every time. They may very well chose to make you pay your tax dues adding to your financial woes.
Also don't expect the IRS to back away like some of the other collectors, as a matter of fact; they can be quite ruthless in their tactics from time to time. There are several collection weapons in the IRS's arsenal that can wreak havoc in your life, having said this; the statement is not intended to scare you. However, what most people fail to realize is that bankruptcy may sometimes act as your shield and protect you to some extent from some of the more brutal tactics that the IRS may employ to make you pay up.
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There are two views about bankruptcy that are held by most tax payers; they either misconstrue it to be a very negative thing or assume that they can use it indiscriminately to ward of f the IRS and that it us by far the simplest escape from tax obligations.
You need to understand that bankruptcy comes as a boon for people in financial trouble because they can seek relief under it from debt collectors including the IRS. If you file for a Chapter 7 Bankruptcy, there are very good chances that your tax obligations may be erased along with the rest of your debts. However, do not assume that a bankruptcy court will always consider erasing your tax debts. For instance, people who opt for the Chapter 11, 12 or 13 bankruptcies will be get the opportunity to move the IRS to settle for an installment deal to resolve their taxation issues.
When you file for a bankruptcy you get an automatic stay, in other words, legal protection against your debt collectors. The moment a bankruptcy comes into the picture all the debt collectors including the IRS will have to cease all their actions against you till your bankruptcy plea is discharged or dismissed.
The only way in which the IRS can collect from you, in case you have filed for a bankruptcy, is by appealing to the bankruptcy court. However, you need to understand that the judge is on you side here and the only way in which the IRS can sway him/ her is by proving that you are committing a fraud by filing for bankruptcy. To put it simply, they will have to prove to the court that you are trying to wiggle your way out of your payments by resorting to a claim of bankruptcy.
Now remember if this is the case, you will find yourself in a lot of IRS mess not to say the other creditors who will come after you. However, in most genuine cases of bankruptcy the clock stops on your debt collectors till the bankruptcy claim is either dismissed or discharged. If the bankruptcy is dismissed the creditors are free to go back to their collection tactics.
Of all the form of bankruptcies Chapter 7 is the only kind that will erase your tax debts. However, you will have to fit into the category of specific conditions and requirements in order to file for a chapter 7 bankruptcy.
Finally, you need to understand that just because you have filed for Chapter 7 bankruptcy does not mean that the IRS will go away. There are several loopholes that the taxman can exploit to collect from you. For instance, if an IRS tax lien was filed before you filed for bankruptcy; in such a case, the IRS will have the right to any assets that the tax payer may hold despite filing for bankruptcy. In the other forms of bankruptcies you cannot erase your debts you can simply buy some time to pay your tax dues.
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