If you face the double whammy of back taxes and overwhelming debt Chapter 13 is a smart strategy to get yourself back on your feet. To understand why you have to understand that in most circumstances taxes are not dischargeable..that is you will have to pay them regardless if you file bankruptcy or not….But in Chapter 13 you can include back taxes and pay them back over three to five years interest fee and penalty free.
And if you have a lot of other debt you can throw that into the bankruptcy and in many cases pay back your unsecured creditors for just pennies on the dollar at the same time you solve your tax obligation…. which you have to do anyway. In essence, you can kill two birds with one stone for a reasonable payment.
A sample case will illustrate the point and highlights how bankruptcy is indeed a financial strategy and not a personal failing. Take a married with one child with a monthly gross income of $7,100, back taxes of $20,000 and credit card debt of $45,000. This couple could get pay their taxes, discharge their credit card debt and pay their lawyer for around payments of only $450 per month for five years. In the alternative, the minimum payments at 18.9% on the credit card debt alone would be $675.00 and would ultimately result in cash outlays of over $330,000. And there would still be the taxes to pay. This would result in payment probably in the range of additional $400 over five years. Which makes the most sense? The numbers don’t lie.
Never forget that if you view your personal situation as a business, a Chapter 13 is often the smart way to handle your debt, especially if you have some sizeable tax debts.
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