Chapter 7 and Chapter 13 are probably two of the most misunderstood forms of debt collection protection in the world – and they are also two of the most complicated systems in the world with ever-changing laws, bills, and codes. On the surface, filing for bankruptcy may sound like the most appealing solution to overwhelming debt, including taxes, but underneath, it is probably the worst thing you can do when other options do exist. It is believed that bankruptcy should never be a first choice, and it should always be the very last resort. Why? Bankruptcy remains on your credit report for 7-10 years.

Briefly, Chapter 7 Bankruptcy, also referred to as a "straight bankruptcy" is a liquidation proceeding wherein the debtors property is liquidated (turned into cash), then distributed to the creditors. Chapter 13 Bankruptcy also, “reorganization bankruptcy,” is filed by individuals who want to pay off their debts over a short period of time, typically three to five years.

Some of the most common reasons for bankruptcy filings include: unexpected unemployment, unmanageable medical expenses, seriously overextended credit, marital problems, and other large unexpected expenses.

While bankruptcy can protect you from bill collectors and eventually discharge you from these types of debts, unfortunately, bankruptcy cannot protect you from the IRS. Most tax debt cannot be erased in bankruptcy. The only way tax debt can be erased with a Chapter 7 bankruptcy filing (your best bet) is if the following conditions exist: The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy; You did not commit fraud or willful evasion; The debt is at least three years old; You filed a tax return at least two years before filing for bankruptcy; You pass the "240-day rule," meaning, the income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet.

If you are attempting to eliminate tax debts in bankruptcy, you will need to contact an experienced tax attorney, bankruptcy attorney, or debt collection attorney to help you file your claim and to help you understand what bankruptcy can and cannot do your best to avoid general practice lawyers and the Yellow Pages.