I Recently Bought a Business That Isn’t Doing Well and Owes the IRS. – Susan

“Dear Steve,

I recently bought a business that isn’t doing well. I’m just making enough to pay the business expenses with zero left over. I’ve accumulated $68000 in debt plus an additional $81,000 in a Home Equity loan due to a gambling problem I have. I’ve since gotten help for the habit and haven’t gambled in over 7 months. At any rate, I don’t want to lose our home and the $68000 includes $21000 back taxes I owe to the IRS. I have $80000 in a 401k plan and $12000 in stocks. I’m not sure where to go from here. Everyone is telling me not to touch the retirement plan but how do I get out of this?

Please help provide the best solution possible with the least amount of tax ramifications. Should I file for bankruptcy?


Dear Susan,

I’m sure you’d agree, that’s a mess.

The biggest issue is the massive IRS debt. When the IRS calculate a repayment plan they don’t factor in any unsecured debts you owe. In their mind, they come first before anything else. My biggest concern is even if they gave you a repayment plan, with your other debts I seriously doubt you’d have any money to make the payment each month.

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You probably don’t have many options other than giving back the house if it has little to no equity and going bankrupt to discharge the mortgages and credit card debt. That will leave you in the best position possible to start repaying the IRS.

And no, you should not touch the 401(k) money since it is protected from your creditors. But the money in simple stocks would not be protected. You could sell the stocks and use the funds to pay down the IRS. But you have to be careful doing that and you should only do it under the guidance and wing of the bankruptcy attorney you decide to work with.

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Find a local bankruptcy attorney you like, make an appointment to go in and talk to them and see how you feel after that conversation about bankruptcy.

In working with the IRS you might want to look into an Enrolled Agent who can represent you with the IRS. Check out the National Association of Enrolled Agents to find a local EA for you.

Please update me on your progress by

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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