When all else fails – or even if all else does not fail – Chapter 7 bankruptcy can be an excellent option to take old IRS problems out of your life.
Yes, bankruptcy can eliminate tax debt.
But bankruptcy is also incorrectly associated with losing assets, having everything you own wiped out by the bankruptcy court.
Chapter 7 is indeed what is known as a “liquidating bankruptcy,” meaning that in return for having your debt eliminated, a bankruptcy trustee can take your personal belongings, sell them, and pay the proceeds to your creditors.
But that would leave you with nothing – which is against public policy, not too mention prohibited by bankruptcy law.
Yes, you can file Chapter 7 bankruptcy on the IRS, eliminate your tax debt, and keep all of your property.
Here’s why: Exemptions.
Exemptions are bankruptcy-speak for legal protections that prevent your creditors from taking your property. Exemptions are law from Section 522 of the bankruptcy code – they make your property off-limits before bankruptcy, during bankruptcy, and after bankruptcy.
Here are some examples of exemptions in Ohio:
– Up to $125,000 of equity for your interest in your house (increases to $250,000 if the house is jointly titled to and, say, your spouse). Equity is the difference between what the house is worth and what you owe on your mortgage.
– Up to $3,225 of equity in your car, increasing to $6,450 if the car is jointly titled.
– Up to $10,775 of value in your household goods and belongings, increasing to $21,550 if jointly owned.
Retirement accounts are also protected from creditors in bankruptcy.
In most every case, these exemptions – and others too numerous to list – will allow taxes to be eliminated without the loss of any property to the bankruptcy trustee.
Yes – it is possible to eliminate taxes in a Chapter 7 bankruptcy, keep all of your property, and get a fresh start, debt-free.