According to the Internal Revenue Service, Chapter 13 is the form of bankruptcy individual filers generally choose if they have not been able to pay their back taxes.
If Chapter 13 appears to be the right option for you, be prepared to square your bill with the IRS.
How Chapter 13 works
If you have substantial assets and a higher income than is permitted for a Chapter 7 filing, you may want to file a Chapter 13 bankruptcy. This form allows you to reorganize your debt with a repayment plan that will last from three to five years. With Chapter 13 in place, you will not have to give up your home, your vehicle or other personal possessions.
A step-by-step tax process
When you file Chapter 13, you must also file your federal tax returns for the four years prior to your bankruptcy filing date. You must submit these to the IRS before the first meeting of creditors takes place. Sooner is better than later so that the IRS can confirm receipt of the returns. You will also have to file all current federal, state and local returns with due dates that occur after your bankruptcy procedure begins.
The bankruptcy trustee may want copies of your tax return transcripts as proof that you have filed. Free transcripts are available on the IRS website, or you can call to request them. The IRS can mail the transcripts to you, to your attorney or directly to the trustee.
Failure to comply
If you do not file your federal returns by the due date, you can expect to pay interest and penalties. If you fail to provide the IRS with the tax returns they request, the trustee may ask the court to dismiss your bankruptcy case.
The Internal Revenue Service is willing to work with you on the federal taxes you owe. If your tax obligations have been weighing you down, filing Chapter 13 may be the solution that will put you back on sound financial footing.