If you are in a financial bind and unable to meet your monthly obligations, there is a good chance that you cannot afford to pay your federal tax debt. For many bankruptcy filers, the inability to pay their credit card debts, medical debts, and utilities extend beyond their daily and monthly obligations – they can't afford to pay their taxes either.

If you owe a lot of tax debt, you may be curious to know if it can be included in bankruptcy. According to the Internal Revenue Service (IRS), if you owe past due federal taxes that you are unable to pay, then bankruptcy may be an option.

Your other options may be an IRS payment plan, or perhaps an offer in compromise. However, in order to do an OIC, you need to have cash on hand to make a lump sum payment.

A Chapter 13 Bankruptcy May Help

Many individual debtors with regular sources of income opt for the Chapter 13 bankruptcy. Before you consider a Chapter 13 bankruptcy, here are a few things that you should keep in mind:

• Before you file for bankruptcy, you must file all required tax returns for the last four years.
• While your bankruptcy is pending, you must continue to file your taxes, or you must get an extension at the time that you file.
• During your bankruptcy case, you should pay all of your current taxes as they come due.
• If you fail to file your tax returns or pay your current taxes during your bankruptcy case, then your case can be dismissed.

Individuals can also file under Chapter 7 or Chapter 11 of the Bankruptcy Code. Corporations and partnerships file under Chapter 11 or Chapter 7. For more tax information on bankruptcy, contact a bankruptcy attorney in our directory!