What To Do If You Owe Money To The IRS

Do you owe money to the IRS? Having debt with the IRS is a stressful situation that should be addressed before it becomes more serious. A carefully planned bankruptcy could be a great way for you to address your tax debts head on. Before filing bankruptcy due to tax debts, it’s important to understand the requirements, benefits, and disadvantages of each chapter. For more information, contact our Nevada bankruptcy lawyers for your free consultation.

Stressed Out Couple With Past Tax Debts in Las Vegas, NV.

General Bankruptcy Information

The vast majority of consumer bankruptcy cases in the United States are filed under either Chapter 7 or Chapter 13. In both chapters, the debtor must complete online credit counseling and file a bankruptcy petition, along with their creditor mailing matrix, with the court. Once the petition is filed with the court, the debtor is protected by the automatic stay. The automatic stay stops all forms of creditor collection, including wage garnishments, repossessions, and utility shutoffs. A bankruptcy trustee is assigned to the case, who will review the petition and likely request additional documentation from the debtor. That trustee will also be at the debtor’s 341 Meeting of Creditors, which is a mandatory hearing that creditors also have the option to attend. The debtor must complete a second online credit counseling course within 60 days of the 341 Meeting of Creditors. However, besides these similarities, Chapter 7 and Chapter 13 operate quite differently.

Chapter 7 Bankruptcy In Nevada

Chapter 7 bankruptcy clears away debts, generally within 3-6 months of the petition filing. While there are several exceptions, most unsecured debts are discharged without any repayment in a Chapter 7 bankruptcy. To qualify for such tremendous benefits, you must meet certain criteria. Most of these are to ensure that you don’t actually have the means to pay off your debts. Your assets must be protected by exemptions, or equity limits, or else they can be seized and sold by the trustee. There are mandatory waiting periods between bankruptcy filings. You must also meet certain income requirements to qualify for Chapter 7.

The first way to qualify for Chapter 7 bankruptcy is by comparing your average monthly income based on the past 6 months to your state’s median income. A debtor who makes less than the state median income (combined with their spouse) for their family size will qualify for Chapter 7 bankruptcy. In Nevada, the median monthly income for an individual is $4,532.83. This increases to $5,817.00, $6,461.33, $7,063.67, $7,813.67, and so on, for each additional family member.

If your average monthly income exceeds the state median, you may still qualify by using the Means Test. The Means Test deducts mandatory expenses from your average monthly income to find your disposable monthly income. If that number is negative, you will qualify for Chapter 7- otherwise, you must conduct further calculations. You will then multiply this by 60 to find your disposable income over the next 5 years. If this amount is less than $8,175, you will qualify for Chapter 7 bankruptcy in Nevada. You will need to use special proofs and calculations for amounts more than $8,175, and there is a presumption of abuse if your disposable income over the next 5 years exceeds $13,650.

Chapter 13 Bankruptcy In Nevada

Where there are limits on income in Chapter 7, Chapter 13 actually requires a stable source of income in order to complete the reorganization payment plan. A Chapter 13 payment plan lasts 3 years for someone whose income falls under the state median, and 5 years for someone who makes more than that amount. The amount you will pay each month depends on your debts and your disposable monthly income, which can be calculated as described above.

Debts are paid in order of four categories in a Chapter 13 bankruptcy. Your fees to your trustee and attorney are the first to be paid. Next, your secured debts (besides your mortgage) will be paid in full. Third, priority debts will be paid in a Chapter 13 payment plan. The last category of debts paid is unsecured debts, which can be discharged without full repayment in the plan. Based on certain factors, most tax debts fall into either the third or fourth categories.

Tax Debt Dischargeability

Tax debts that meet certain requirements will be dischargeable in Chapter 7, and included in the fourth category of Chapter 13 debts. If tax debts don’t meet these requirements, they will be nondischargeable in Chapter 7 and in the third category of Chapter 13 debts.

These requirements are:

  • The tax debts stem from income taxes. Business tax debt, penalties, and other types of tax debts are excluded.
  • There was no fraud present. Lying on your tax forms, committing willful tax evasion, failing to report income, and other circumstances can disqualify your tax debts from discharge in bankruptcy.
  • The debt is from at least 3 years ago.
  • The tax returns were filed at least 2 years prior.
  • The debts were assessed at least 240 days before your bankruptcy.

Federal Tax Liens

Your tax debt situation may escalate to a level where the IRS records a lien on your property. At this point, Chapter 7 bankruptcy won’t do much to help. Chapter 7 bankruptcy will wipe away the obligation to pay a debt, but it won’t clear pre-recorded liens. Once there is a tax lien on your property, it becomes a secured debt. You can still use Chapter 13 bankruptcy to deal with a federal tax lien on your property, although the debt will now be included with the second category of debts in your payment plan. As long as there is an IRS lien on your property, you will be unable to sell or transfer that property.

Can Tax Debt Be Discharged In Bankruptcy?

Clearly, tax debts are a special concern when filing bankruptcy. Bankruptcy could clear away your tax debts while protecting you from creditors, or it may do you little good, depending on your specific circumstances. It’s also crucial to be current on tax filings before you start the bankruptcy process, or you could face inconveniences and reduced benefits in your case. With all of these factors to navigate, it’s best to file bankruptcy with the guidance of an experienced bankruptcy attorney.

Our Nevada bankruptcy attorneys offer expert representation with affordable rates and payment plans so that bankruptcy relief can be more attainable for residents of Nevada. This allows you to erase your debts, move forward with a clean financial slate, and begin rebuilding your credit. For more information about the benefits- and drawbacks- of filing bankruptcy in Nevada, contact us or use our online form to schedule your free consultation today.



WantaFreshStart Logo


Nevada Bankruptcy Offices
Las Vegas Bankruptcy Attorney
8565 S. Eastern Avenue
Las Vegas, NV 89123

Las Vegas Bankruptcy Attorney
6130 Elton Avenue
Las Vegas, NV 89107

Las Vegas Bankruptcy Attorney
3430 E. Russell Road
Las Vegas, NV 89120

Las Vegas Bankruptcy Attorney
9680 W Tropicana Ave, Suite 145
Las Vegas, NV 89147

Arizona Bankruptcy Offices
Phoenix Bankruptcy Attorney
2155 W Pinnacle Peak Rd #201
Phoenix, AZ 85027

Phoenix Bankruptcy Attorney
343 W. Roosevelt St., First Floor
Phoenix, AZ 85003

Chandler Bankruptcy Attorney
2705 S. Alma School Road
Chandler, AZ 85286

Gilbert Bankruptcy Attorney
1530 E. Williams Field Road
Gilbert, AZ 85295

Peoria Bankruptcy Attorney
14050 N 83rd Ave Unit 290
Peoria, AZ 85381

Surprise Bankruptcy Attorney
15331 W Bell Rd #212
Surprise, AZ 85374