?A man in debt is so far a slave.?- Ralph Waldo Emerson
Ever since the bankruptcy reform of 2005, Chapter 13 bankruptcy remains the last resort for most of the debtors. This proves to be very difficult to shed off the tax debts. Perhaps the debtor needs to meet certain criterions in order to qualify for the chapter 13 bankruptcy.
Chapter 13 Bankruptcy
A debtor opts for the chapter 13 bankruptcy with an aim to enter a repayment plan instead of discharging the debts. The Internal Revenue Service can assuage a portion of your tax debts. In chapter 13 bankruptcy the debtor has to pay off al the existing debts. If the income of the debtor is higher than the median income of the state, he cannot be eligible for the chapter 7 bankruptcy.
Chapter 7 Bankruptcy
The chapter 7 bankruptcy helps in discharging your debts by selling some of your non-exempted assets. A trustee would be appointed by the court, who would be responsible to carry on with the procedure. He sells off the assets and disburses the amounts to pay off the debts. The debt which is discharged is then forgiven.
Debt that are Discharged
Generally, the debts that are eradicated by bankruptcy are considered by the IRS as taxable income. Hence it can create a tax burden to a debtor. However, the IRS does not take the tax debts that are already discharged as income which eventually does not lead to new tax debts.
Source: http://finance-expertguide.blogspot.com/2011/09/can-bankruptcy-be-solution-to-tax-debts.html
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