Expert: Gina Boykin - 5/10/2009

Question
If I can't afford to pay my federal taxes, can I file for chapter 11? What assets are protected after I file for Chapter 11, eg.house, car? Will my wages be garnished if I file for Chapter 11?

Answer
Chapter 11 is more for businesses. Instead, you would most likely fall under Chapter 13.  Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than $336,900 and secured debt less than $1,010,650.  You would only be filing for Chapter 11 if your income and debt is higher than these levels.

For Chapter 13, you keep all of your assets.  In many cases, for your secured loans (like a home and a car), the loan may be reduced down to the value of the property, and will be used to determine your payments under the plan.

This action also stops collection actions by taxing authorities (which include garnishment and seizure).  Some taxes and interest are dischargeable. The remaining can be paid without any more interest accruing if you are in Chapter 13.

Since I'm not an attorney, it is best to seek additional information and advice from a person who specializes in bankruptcy, before taking any legal action.  

You may also be able to work out a plan directly with the IRS.  If you are having problems paying several debts, you should consider the National Foundation for Credit Counseling (nfcc.org). They can work with all of your creditors on your behalf and work out payment plans that will be good for you and your creditors.  This process is similar to the process you would go through in bankruptcy; however, going this route will do less damage to your credit.