Many people who are facing overwhelming debt and struggling to make ends meet are aware that bankruptcy may be a way out. Bankruptcy can be an effective solution, but it can have serious consequences and should only be taken as a last step.
Bankruptcy may be your best option, especially if you have substantial consumer debt. But bankruptcy will not always solve a person’s tax problems. Certain types of back taxes owed to the IRS or to the State of Washington cannot be wiped out by bankruptcy proceedings. If you owe taxes, it is important to first get a clear picture of your financial situation and then to consider all your options.
It is possible to deal with your debt and regain control of your finances without filing for bankruptcy. It depends on the amount you owe, to whom you owe it, and the assets and income you have to deal with. This blog post considers three alternatives to consider before declaring bankruptcy if you have tax debt.
Three Alternatives to Consider Before Filing for Bankruptcy
1) Contact an IRS Tax Relief Firm
Tax attorneys are more familiar with the intricacies of the tax laws than bankruptcy attorneys. A tax attorney will assess your tax situation and review all the options available to you to deal with your tax debt. If it makes sense for you to file for bankruptcy relief, a tax attorney can refer you to a bankruptcy attorney.
A tax attorney knows the IRS programs available to you and can often help you settle your back tax debt with the Internal Revenue Service. This can be a great way to reduce your overall debt burden if you owe a substantial amount of taxes from prior years. An IRS Tax Settlement, called an Offer-In-Compromise, can also be a great first step to getting back on track with your finances.
2) Ask Other Creditors for a Lower Interest Rate
It is far too easy to get trapped with high credit card interest rates and ever-increasing debt. With interest rates of up to 18% or more, it can be difficult to keep up with the charges and next to impossible to pay down the outstanding balances.
If you file for bankruptcy your credit card balance is an unsecured debt and your credit card company may get nothing. To avoid this, it may be willing to accept a lump sum payment for less than the total amount owed. It may also agree to reduce your interest rate, accept lower monthly minimum payments, or waive late fees. If you are facing a temporary hardship you may even be able to stop making payments for a limited period. You can pick up the phone and call them to ask about your options.
You also may be able to lower any penalties associated with your IRS tax debt. A tax professional can let you know if you might qualify for First-Time Penalty Abatement or for Reasonable Cause Penalty Abatement.
3) Refinance Your Debt
If you do not qualify for an IRS Settlement and your credit card issuers and lenders are not willing to negotiate with you to reduce your payments or waive your fees, there is still a third option to save money and avoid bankruptcy. You may be able to obtain a lower interest rate and lower payments by refinancing your mortgage loan, by taking out a home equity line of credit, or by obtaining a personal loan.
You should contact several lenders to make sure you are getting the best terms possible. Local banks, credit unions and mortgage lenders tend to have more flexible terms and may even have lower interest rates than the large national banks. A lower interest rate can save you a substantial sum of money over the long run and enable you to get out of debt faster.
You won’t be able to qualify for a new loan if you have an IRS tax lien or wage levy. But our firm can help you get these released and set you on a path to get out of debt.
Conclusion
For those in dire financial circumstances, filing for bankruptcy can provide a fresh start and a path forward to financial recovery. But bankruptcy does have disadvantages. It can lower your credit score, make it difficult to apply for new loans, and will not wipe out all kinds of tax debts. It is important to remember that bankruptcy is not the only way out, and to consider the alternatives. The three bankruptcy alternatives listed above can also give you the fresh start you need, without the stigma or long-lasting impacts of a bankruptcy filing.
If you are considering bankruptcy, reach out to our firm first to consider your alternatives. Our clients never have to talk to the IRS, and we may be able to save you money and time and may be able to reduce your tax burden with an IRS settlement or penalty abatement. Schedule an initial consultation today with the experienced legal team at the Law Offices of Robert V. Boeshaar.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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