Can bankruptcy help with tax matters or high rates and penalties?
Yes, bankruptcy can get rid of income taxes, reduce interests and penalties in a cram-down Chapter 13. You can include taxes and student loans in a Chapter 13 repayment plan. Filing a Chapter 7 can also get rid of a tax lien if it impairs your equity in a property to the amount that your exemption is impaired. For instance, let’s say you have a $50,000 house, a $20,000 tax lien, and the mortgage is $42,000. Your exemption is $5000, so the IRS’s lien could be reduced to $3000. If the house is worth $45,000, the government would have no lien at all on the house. A lien can be reduced to only the equity left in the home after your exemption.
