What You Need to Know About an IRS Installment Agreement While in Chapter 13

Paying taxes may be a fact of life for most Americans, but it doesn’t mean that paying them all in one lump sum is always possible. In fact, many people enter into agreements each year to repay their tax debt over time. These agreements can be very useful and help people better manage their finances – as long as they are able to maintain the payments.

What is an IRS Installment Agreement?

What exactly is an IRS installment agreement? Also known as a long-term payment plan, these plans are designed to make repaying outstanding tax debt easier for consumers to handle. This agreement has to be made with the Internal Revenue Service directly. It should only be made by consumers who are certain that they will be able to make those payments over the course of the agreement period.

What Happens if You Cannot Continue Paying the IRS Installment Agreement?

Obviously, life happens. Things come up that can change a person’s financial situation drastically. Even the best-prepared people are not immune to unforeseen circumstances. 

This has never been more effectively demonstrated than it was during the 2020 and 2021 ebb and flow of the coronavirus pandemic. Each time the virus returned and numbers spiked, shutdowns and economic downturns made doing business harder. This meant that many people lost their jobs and were no longer able to pay bills that they could easily handle just months earlier. 

Obviously, failing to pay the required payments for an IRS installment agreement can and typically will result in action on the part of the IRS. While you may be able to contact them and renegotiate your terms, this is not always an available solution. When this happens, you may end up with a federal tax lien or levy action filed against you on behalf of the IRS.

Guidelines for IRS Revocation of the Installment Agreement

Why might the IRS revoke your installment agreement? Some reasons might include but are not limited to the following:

• The consumer misses a payment.
• The consumer does not file or pay taxes once the agreement is entered into.
• The consumer does not provide accurate information via the 433-F form.
• The consumer notifies the IRS that they are no longer able to meet the requirements of the agreement, including the amount or frequency of payments.

Keep in mind, you may be able to avoid having your agreement revoked. Contact the IRS promptly if your financial situation changes. Provide adequate documentation as needed. By doing so, you may be able to renegotiate your monthly payment plan or lower your monthly payments. The only way to know if this option is available to you is to contact the IRS directly and as soon as possible.

Can You Continue with an IRS Installment Agreement While in Chapter 13 Bankruptcy?

What happens if you are not eligible to change your payment plan? What if you know that you will not be able to continue making payments to the IRS in the face of your current economic hardship? Do you have other options?

Many people in these circumstances may wonder if bankruptcy would be a better option for them. There are several different types of bankruptcy that a person dealing with debt and an inability to repay it might be eligible for. One of the most popular is Chapter 13. 

Chapter 13 bankruptcy has several advantages. Although it does not outright dismiss your debts through discharge the way Chapter 7 bankruptcy does, it does typically allow you to keep your home, car, and other assets. For those who are not in any rush to lose their most valuable assets, this is the best possible approach – and allows you to better manage the repayment of debt with a long-term repayment plan that lasts anywhere from 36-60 months.

Can you continue with an IRS installment agreement while in Chapter 13 bankruptcy? Unfortunately, no. 

Bankruptcy court will not allow you to continue paying down your tax debt or any other long-term debt through an agency outside the courts. Likewise, the IRS will not allow you to continue with an installment agreement if you are involved in a bankruptcy. Rather, all of your outstanding tax debt will then be rolled into the total amount that you owe for the bankruptcy agreement – and must then be repaid as part of that agreement, instead.

Here’s Why Chapter 13 Bankruptcy Might Actually Be Better for Your Needs

While maintaining an IRS installment agreement while in Chapter 13 isn’t possible, it may actually be for the better. Why? Because for many people, Chapter 13 bankruptcy is actually the better approach to debt repayment overall.

There are two reasons for this. First, when it comes to repaying debt to your various creditors, the IRS may be allowed to take priority. This means that repaying your tax debt – and wiping out a substantial chunk of the debt you have to pay overall – may be allowed to take place first, which will help you whittle away at that total quickly. 

Second, some of the debt you owe to the IRS may actually be dischargeable. This means that if you are able to discharge all or even a portion of this debt through bankruptcy, you will have less that you are obligated to repay to the IRS. Who doesn’t want to relieve themselves of at least some of that debt? 

Since you cannot continue an IRS installment agreement while in Chapter 13 bankruptcy, it is always best to consult a legal professional to determine if making that switch is the best choice for your unique financial situation.

Get the Guidance You Need Through the Van Horn Law Group

Still not sure whether continuing with your IRS installment agreement or opting for bankruptcy is the best choice in your situation? Talk to the experienced team at the Van Horn Law Group. We can help you make the right choice for your scenario and navigate whichever process you choose. Don’t let IRS agreements or bankruptcy frighten or intimidate you. Give us a call today!