subject: Can You Afford the IRS through Bankruptcy? [print this page] Can You Afford the IRS through Bankruptcy?
Can You Afford the IRS through Bankruptcy?
Many people are under the mistaken impression that going bankrupt avoids an obligation to the IRS. Let me assure you that that is not true. The Federal Bankruptcy Code excludes several categories of debt from the set-aside provisions of the law, including federal and state income tax liabilities. Also excluded are federally backed school loans, loans from some nonprofit institutions, and secured property loans.
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I have worked with many people who have undergone bankruptcy. Some chose to do so voluntarily, and others had it forced upon them by creditor actions. In both cases they quickly realized that bankruptcy is a serious matter, and at best both sides lose. The creditors lose much of the money they are owed, and the debtors lose some of the respect they previously had. There is a stigma associated with any bankruptcy, and until the last of the creditors are repaid it will probably remain. You can turn an otherwise negative situation into a positive one by making a commitment to repay what is legitimately owed. You can only do what you can do. Once you have made the commitment, it is then up to God to provide the means to do so.
Perhaps the scriptural principle that best describes the use of bankruptcy to avoid paying back legitimate debts is found in the parable of the unrighteous steward in Luke 16:1-12. In that parable the Lord describes a steward (a manager of another's property) who was guilty of misappropriating his master's property. When the master discovered what he had done, he determined to dismiss his steward. In an effort to maintain some security for himself the manager negotiated with his master's clients and reduced the amounts they owed--apparently in hopes that they would pay him something later. When the master discovered that, he marveled at the ingenuity of the deceitful manager (verse 8).
Does the Lord also marvel at one who goes bankrupt to avoid paying his creditors while holding assets that could be sold? Each Christian has to decide that issue individually. But what a shame it would be to appear before the Lord one day and learn, as Esau did, that he had traded his inheritance for a meal. Luke 16:13 says, "No servant can serve two masters; for either he will hate the one, and love the other, or else he will hold to one, and despise the other. You cannot serve God and mammon."
