Blogs
A common misconception is that irresponsible people are the ones who usually file for bankruptcy. However, nothing could be farther from the truth. While it is true that bad budgeting or overspending may be attributed to being irresponsible, managing money is harder than ever thanks to inflation. Thus, a combination of bad budgeting and a habit of spending too much money can cause your debt to skyrocket and lead you to bankruptcy a lot faster than ever expected. But, then again, there are times that overwhelming debts may have been a result of life-changing events that you have no control over. We, at Northwest Debt Relief Law Firm, are here to take off the wool over your eyes and enlighten you about the realities of bankruptcy.
It is unfair to be prejudiced against another person who files for bankruptcy, to judge that he or she was irresponsible. Why? Because there are many other causes of bankruptcy. Some of them totally unexpected and not of their fault. The following are just some of the common ones:
➤Medical expenses
A study done by Harvard University indicates that the leading cause of bankruptcy is due to medical expenses. These expenses account for a whopping 62 percent of all reported personal bankruptcies. The study also showed that 78% of filers had some form of health insurance, thus bucking the myth that medical bills affect only the uninsured. Rare or serious diseases or injuries can easily result in hundreds of thousands of dollars in medical bills – staggering amounts that can quickly wipe out life savings and retirement accounts, college education funds and home equity. Bankruptcy may be the only way out when they are left almost penniless, regardless of whether the patient or his or her family had health insurance to cover a portion of the bill or not.
➤Reduction in Income
There may be times that some companies also have to cut costs to keep the company afloat. In such instances, this may mean employees putting up with pay cuts and bonus reductions.
➤Job loss
Losing your job, whether through layoff, termination, or resignation equates to the loss of income. This may mean challenging times ahead especially if you have not been able to set aside enough funds to tide you over to the next job. While some people may be able to receive severance packages, others are not as lucky with finding pink slips on their desk without any prior notice. An emergency fund will have been helpful. Otherwise, you will have no choice but to use your credit cards to pay off bills and this move could entrap you in debts with no clear indication on whether you can pay them off later on. The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker’s already limited resources. People who are not able to find similar gainful employment for a long period of time may find it challenging to recover in time to pay off creditors.
➤Divorce or separation
Marital dissolutions result in dreadful blows on the finances of both parties. They need to deal with legal fees, which may cost a lot of money. They also need to deal with the division of marital assets, paying off child support and/or alimony, and finally the ongoing cost of keeping up two separate households after the split. The mounting costs of legal representation are enough to force some people to file for bankruptcy, while wage garnishments to cover back child support or alimony can strip others of the ability to pay the rest of their bills. Spouses who fail to pay the support dictated in the agreement often leave the other completely destitute.
➤Excessive use of credit
Credit companies are aggressive in selling their credit cards, mortgages, and other forms of consumer debt. However, credit card bills, installment debt, and other loan payments can eventually get out of control, until eventually, the borrower may not be able to even settle the minimum amount due for each type of debt. In the end, the borrower will have no other choice but bankruptcy if funds are not obtainable with the help of friends or family or debt consolidation.
➤Unexpected Expenses
Other times, unexpected expenses such as loss of property due to theft or natural calamities like earthquakes, floods or tornadoes for which the owner is not insured can force some into bankruptcy. Most homeowners are now aware that there is a separate coverage for fortuitous events like earthquakes. As such, they can lose their homes, if not all of their possessions in the face of such calamity.
➤Foreclosure
When people face foreclosure on their homes, more than 1% of Americans to filing for bankruptcy. This enables them to re-organize their debt which may prevent them from having to foreclose in the future.
➤Utility payments
With the rising costs in real estate, the utility payments people have to pay are also increasing. Heat, electricity and other necessities are paving the way to bankruptcies.
➤Student loans
A lot of people have not been able to fully pay their student loans well beyond college. Studies show that student loans account for 1% of all filed bankruptcies. That 1% translates to approximately 15,000 bankruptcies a year.
➤More money being spent versus the income earned.
At the end of the day, people have to keep track of expenses. When your income is running low, do not be surprised if you may be in the red sooner than you think. Bills come at a steady pace. They will not stop just because you do not have sufficient means to pay them off. There are many reasons why people are forced-or choose-to declare bankruptcy. But more often than not, common sense, sound financial planning, and preparation for the future can nip the problem in the bud.
Should you speak to a bankruptcy attorney in Seattle?
Worse comes to worst, you may need solid legal advice before you actually dive into bankruptcy. Do not hesitate to speak to an experienced bankruptcy lawyer in Seattle. One of the best bankruptcy attorneys is at Northwest Debt Relief Law Firm. Our bankruptcy attorneys will help you with the options available to you and guide you on the path to a fresh start. Call us now for a free initial case evaluation.
The post What are the Top Causes of Bankruptcy? appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Bankruptcy has proven to be an excellent method to get rid of unmanageable debt. Throughout the years, millions of people around the U.S. have witnessed the benefits bankruptcy can bring into their lives. However, there is still confusion and fear surrounding the word “bankruptcy.” How does bankruptcy work and how much time will a discharge […]
The post How Long Will Bankruptcy Stay on My Credit Report in California appeared first on The Bankruptcy Group, P.C..
Yellow taxi cabs and New York City — what could be more iconic?
Successfully hailing a cab has always been a rite of passage for New Yorkers. It has bewildered out-of-towners but was traditionally handled with little effort by seasoned residents of the Big Apple: spot an on-duty cab, raise a hand, hop inside, enjoy a potentially strange, yet authentic, experience.
The old-school taxi business has been under assault in New York for some time, however, as Uber and Lyft have spent half a decade rapidly expanding their operations. Ride-hailing has flooded Manhattan with cars and driven down the value of the city's allocated taxi medallions: There are 13,500 cabs in New York City — but there is something like 80,000 vehicles aligned with ride-hailing services, according to The Wall Street Journal.
Taxis now have a new challenge, and it could be an existential one: congestion charges in New York, which are set to be the first in a US city.
The congestion-pricing scheme is now part of a New York state budget, with the fees to kick in by 2021. People driving into the congestion zone — Manhattan island below 60th St. — will be hit with a $12 to $14 fee (it will likely be assessed using the E-Z Pass system, which already covers many bridges, tunnels, and toll roads in the region). Taxis will be billed $2.50 per ride, while ride-hailing services will be billed $2.75.
Taxis don't cause congestion But Uber and Lyft, for example, will be able to carve out a discount for a "pooled" ride, knocking the fee down to $0.75. Taxis won't be able to do this — and it could be impossible to monitor whether ride-hailed pools actually wind up transporting multiple passengers.
The whole thing is intended to generate $15 billion over five years for capital improvements to the city's mass-transit system (in one of those "only in New York" twists, the state government in Albany oversees mass transit in New York City). That's much-needed funding, and one hopes it will be wisely spent. But the most recent expansion of the city's subway, the Second Ave. line, took decades and cost a staggering $3.8 billion, so don't get your hopes up.
Congestion pricing, of course, should ease Manhattan gridlock, but it will do this at the expense of turning over the city's most lucrative sections to Uber and Lyft while continuing the destruction of the taxi business. It's a hard political bargain, which was forged by New York Gov. Andrew Cuomo.
As far as I can tell, the plan combines accepted economic theory about congestion caused by personal cars — it's an unpriced "externality" — with a cunning effort to get well-capitalized Silicon Valley companies to pay for upgrading mass transit. Taxi drivers caught in the middle Taxi drivers are caught in the viselike middle. They've persuasively argued that because their numbers have long been capped, they aren't part of the congestion problem. This is accurate — in fact, it's hard to see why taxis aren't exempt from the charge. They're sort of the longstanding third leg of a New York City transit stool, with buses and subways being the other two.
The taxi business has evidently lost that argument and could now have a tough time competing with Uber, Lyft, and others because ride-hailing services — already losing massive amounts of money as they chase the growth that investors desire — will simply cut prices to avoid any passenger sticker shock.
The double standard at work here is actually so glaring that it's almost hard to believe it's real. Uber, Lyft, and other ride-hailing services simply deluged New York City streets with vehicles in an effort to rapidly build their businesses. And we know how big those businesses can be: Lyft's initial public offering last week valued the company at over $20 billion.
The taxi business is hardly pure — economists have often argued that it was a monopoly, and, at one point, taxi medallions were costing more than $1 million. But New York is now using its lawmaking and budgetary power to pick a clear winner in the transit game; the kind of money that the Ubers and Lyfts can bring to the table is simply too humongous to resist.
Pragmatists will tell you that the horse, so to speak, has left the barn anyway, so it makes sense for New York to effectively tax ride-hailing to make up for years of neglecting the transit systems that have nothing to do with gridlock. In that case, the taxi business, iconic or not, is expendable.
Copyright © 2019 Insider Inc. All rights reserved.
Many people are facing severe financial situations due to the tough economy. For this reason, many hard-working Californians are forced to face foreclosure. This can put homeowners under a lot of stress. Fortunately, there are ways you can fight against foreclosure and save your home from being sold by your creditors. The California foreclosure defense […]
The post Can You Keep Your Home During a Foreclosure in California? appeared first on The Bankruptcy Group, P.C..
When you find your small business in the red, bankruptcy may be your best option. Restructuring your debts under Chapter 11 or Chapter 13 (with certain limitations) may be the saving grace to keep your company afloat.
On the contrary, if you are planning to close down your business, a “straight” or “liquidation” bankruptcy may be the better way out.
How does reorganization help my small business?
Both Chapters 11 and 13 both will allow debtors to propose a plan to restructure their finances. This restructuring plan can help your company stay in business. If you qualify, a Chapter 11 or 13 (with limitations) plan can:
- give you time to sell assets you do not need or cannot afford to keep or maintain,
- modify payment terms on secured debts (like real property mortgages or equipment loans),
- allow you to keep property that you need to operate your business, and
- discharge debts that you cannot settle over the plan term (in Chapter 11 only).
When possible, most small business owners, choose Chapter 13 over Chapter 11. However, Chapter 11 is more flexible although it costs more and takes more time, resources that small business owners may not have enough to make this kind of bankruptcy a better alternative.
Do I qualify for Chapter 13 Bankruptcy?
Anyone can file for Chapter 11 bankruptcy, but a lot of small businesses may not qualify for Chapter 13.
If you have a regular income, you may be able to qualify for Chapter 13 bankruptcy. If you are a sole proprietor, you can file a Chapter 13 petition under your name and your business debts will be included in your plan. Take note that Chapter 13 is still subject to debt limitations, which change periodically. As of April 2019, a filer’s debt can’t exceed $1,257,850 in secured debt and $419,275 in unsecured debt. Therefore it is much easier to file under Chapter 11 bankruptcy.
If your small business is in danger of drowning in debt, you might want to consider seeking advice from an experienced bankruptcy lawyer in Oregon. In this way, you will be better informed of your options available to you.
What are the differences in eligibility of Chapter 13 vs. Chapter 11?
Chapter 11
Chapter 13
● No debt or income requirements or limitations
● Individuals, corporations, partnerships, joint ventures, and limited liability companies
● Must have a regular income
● Sole proprietor
What are the advantages and disadvantages of Chapter 11 vs. Chapter 13?
Chapter 11 typically makes sense for businesses or individuals who have debt levels that are greater than those allowed in Chapter 13 bankruptcy. Some small business debtors can take advantage of special provisions that help streamline Chapter 11 matters. However, if you qualify to file for Chapter 13 bankruptcy, you will likely want to file it rather than a Chapter 11 bankruptcy.
Below are the advantages of each type of bankruptcy:
Chapter 11
Chapter 13
● Extended payment terms on real property mortgages or equipment loans due to new contract terms that can be created between debtor and creditors
● You can use actual expenses to determine your disposable income (so if your actual expenses are high, this could benefit you)
● You are not required to have regular income to contribute to the repayment plan
● Monthly payments are not required
● You can use alternate sources of funding, such as the proceeds from the sale of real estate or the proceeds from pending lawsuits, in order to fund your plan
● The discharge may be granted once your plan is confirmed and you begin to pay creditors
● Turnover of disposable income to a trustee is not required
● Trustees are only called for in instances of mismanagement or fraud
● Cheaper to file
● Quicker approval process
● More debt types, such as nonsupport obligations arising from a marital property settlement agreement, are discharged
● Commitment period may be shortened and therefore makes it a more efficient process than Chapter 11, provided that all unsecured loans are fully-settled
Below are the disadvantages of each type of bankruptcy:
Chapter 11
Chapter 13
● Available only to Corporations, partnerships and limited liability companies
● Complex. Moves more slowly and gives you time to do most of your restructuring before you formulate a plan. It is common for the court to approve financing for businesses in Chapter 11 long before a plan is filed
● Expensive. Attorney fees for a Chapter 11 can easily be ten times the amount you would pay for a Chapter 13
● Creditors have the opportunity to vote to accept or reject your plan. They don’t need a reason to vote against your plan and do not need to file formal court papers (other than returning their ballot) or appear in court
● Available only to sole proprietors filing as individuals
● Lower debt limitations than those of Chapter 11 small business filers.
● Plans are approved only if they meet the requirements of the bankruptcy laws
● Creditors can object to your plan but they must have a basis for their objection and must present the objection to the court at a hearing
● More rigid and moves quickly toward plan approval. You cannot borrow money without court approval at any time during a Chapter 13 bankruptcy, and the situations where you would be allowed to do so are limited
Contact an Experienced Oregon Bankruptcy Attorney Today
If you or anyone you know has a small business and looking into filing bankruptcy, the earlier a bankruptcy lawyer is consulted, the better. It will save time and money in the long run and will prevent undue distress. Feel free to call one of the best bankruptcy attorneys in Oregon. Get in touch with us at Northwest Debt Relief Law Firm for a free initial case evaluation. We aim to help clients get a fresh start in their financial lives.
The post Which Type of Bankruptcy is Better for A Small Business Owner Like Me? appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Getting Relief from Tax-Debt Garnishments
Most people have at least passing knowledge of wage garnishment –the process of deducting money from an employee’s monetary compensation (including salary) as a result of a court order. Fortunately for those who find themselves in the unfortunate position of having their wages garnished, these payments are limited by federal law to 25 percent of the employee’s disposable income. Unfortunately, those payments will continue until the entire debt has been paid off. Any kind of debt can lead to garnishment of wages, but the most common types include back child support, unpaid court fines or judgments, defaulted student loans , and the biggie–taxes owed to either state governments or the IRS.
Once the garnishment has been served on an employer, the company takes a portion of the employee’s salary during the payroll process in order to cover the required payment. Employers are sent an official notice giving them the amount to hold back and cannot refuse to garnish wages. Wage garnishments can have a negative impact on credit, reputation, and the willingness of lenders to extend offers of credit and loans.
When Can the IRS Garnish Your Wages?
Several conditions must be met for the IRS to begin wage garnishment for tax debts:
- The IRS must have assessed the tax and sent a Notice and Demand for Payment
- The taxpayer must have neglected or refused to pay the tax.
- The IRS must have sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS can serve the Final Notice in person, leave it at the taxpayer’s home or workplace, or send it to the last known address by certified or registered mail.
Of course, that last condition only requires the IRS to send the Final Notice to the last address known to it. They are under no obligation to ensure that taxpayers actually received the Notice, meaning taxpayers may not actually find out about the garnishment until it starts being deducted from their wages. This makes it imperative that taxpayers make sure they keep the IRS updated with their current address at all times.
One option that can help take away the stress of a wage garnishment you can’t afford is that of filing for bankruptcy. If you’re already up to your ears in debt and barely able to make ends meet each month, one wage garnishment can be the straw that breaks the camel’s back. Filing for bankruptcy stops tax garnishments. Taxing authorities must immediately stop garnishments as soon as they receive notification of the bankruptcy, no matter what kind of tax debt you owe. Of course, you must still pay back the taxes you owe, but this will at least help protect your paycheck for the time being, putting you in a stronger position for dealing with the tax debt on terms you can afford.
In certain cases, you may be able to discharge specific kinds of tax debt and the bankruptcy attorney can also structure an easier repayment plan with a chapter 13 bankruptcy . Either way, however, it’s a good idea to consult a bankruptcy attorney who may be able to get rid of the tax garnishment forever–or at least help you get the breathing room you need to dig yourself out of your current financial hole.
Under Certain Circumstances, it is Possible to Get Tax Debt Relief
Let’s roll back the clock a bit. Assume it is 2003, and you are in the middle of filing your taxes. You realize that, for one reason or another, you did not pay enough in taxes for that year. Instead of getting a nice refund, you now owe Uncle Sam a sum of money that you do not have. What is the best thing to do in this situation? Without a doubt, you still should file your taxes. Even if you cannot send payment with your return, filing your taxes and not paying immediately will put you in a much better position than not filing at all.
The IRS might take a few years to realize the shortfall. You can be assured that by the time the IRS decides to try to collect the tax from you, the original amount you owed will have increased significantly, due to penalties and years of interest accruing. It would even be safe to say that the small sum of money you owed the IRS in 2003 has now doubled, or even tripled in size. Dealing with the IRS can be a very scary situation. You did not file fraudulently, you did not file late, and the tax due is more than three years old. Do you have any options? Can bankruptcy help you in this situation?
With the help of a qualified bankruptcy attorney, yes it can! You may be able to get tax debt relief under certain circumstances. With a skilled bankruptcy lawyer by your side, it is certainly possible if the debt meets certain criteria. The tax year in question must have been filed in a timely manner, and without the intent of fraud. The tax liability also must be more than three years old in order to qualify for tax debt relief. In addition, the IRS must not have assessed your liability for the tax debt within 240 days prior to your bankruptcy filing date. If you have not received the formal notice of assessment from the IRS within 240 days of your filing date, you should be eligible.
Although you may feel guilty about not paying your tax debt, there is little reason to feel this way. Most working people, over the course of their lifetimes, pay more than their fair share of property taxes, income taxes, sales taxes, and utility taxes. You should not feel guilty for not being able to pay your tax debt. You should feel proud to live in a country that allows responsible, hardworking citizens to have a second chance when they fall on hard times. It can be very easy to make a mistake with today’s overly complicated and bulky tax code, as well. If you have a tax debt that you cannot pay, bankruptcy may be the solution you need. Contact a lawyer in your area today to find out if you qualify for tax debt relief.
Is Discharged Debt Taxable?
One of the most defining aspects of bankruptcy is the discharge of debts that comes at the end of a case. Whether you file under Chapter 7 or Chapter 13 of the U.S. bankruptcy code, you will receive a discharge charge of your debts following liquidation under Chapter 7, or the completion of a payment plan under Chapter 13. This debt discharge frees you from obligations to make payments on certain unsecured debts, such as credit card debt, and it can provide the financial freedom needed to gain control of your finances.
Although a debt discharge does help consumers find a financial fresh start after struggling with insurmountable debt, many people considering bankruptcy or other forms of debt relief harbor concerns about tax implications.
With bankruptcy, discharged debts have no income tax consequences – and it is excluded from gross income. However, individuals who have filed bankruptcy and received a discharge may receive a form from the IRS regarding Cancellation of Debt. This form can be completed and sent to the IRS informing them that the debt was discharged in bankruptcy.
Although there are no income tax consequences to debt discharges, tax attributes such as a loss, can pass to the bankruptcy estate and may be used by a bankruptcy trustee when administering the estate. This is often the case when businesses are involved.
Bankruptcy may not have tax implications for consumers, but other forms of debt relief can. For example, credit card debt that has been partially or fully cancelled with the help of a debt settlement company could result in a tax bill for the debtor. The IRS can even charge a tax if your home if foreclosed on if the value of the house was less than what you owed on your mortgage. But debt that is discharged in bankruptcy is never subject to taxation by the IRS, because debt discharged in bankruptcy is never considered income.
If you are considering canceling debt using a debt settlement firm or if you are preparing for a short-sale which will create “income” in the eyes of the IRS you may want to consider the tax implications first.
Also before considering efforts to cancel individual debts, make sure that those actions make measurable impacts on your financial situation. Often debtors expend lots of energy using debt settlement that does not help them in the long-term. To avoid this take, a look at all of your debts when considering how you will tackle your financial problems.
For more information about your current financial situation, bankruptcy, and tax implications, you can speak with a Dallas bankruptcy lawyer from
Tax Settlement: 6 Solutions to Resolve Tax Debt
Solutions to Resolve Tax Debt
The Internal Revenue Service (IRS) offers multiple methods for taxpayers to settle their tax debt . Many find it easier to just ignore what they owe but this only makes things worse. The longer you put off paying your taxes the more you will owe penalties and interest.
If you can’t afford to pay what you owe in full, the following options may help you get in good standing with the IRS and avoid legal action:
- Installment agreement – This is the most common tax settlement option available that lets taxpayers make monthly payments meeting a minimum amount.
- Partial payment installment agreement – If you are unable to make the required payment under the installment plan, this option lets you make smaller monthly payments. It’s also possible to pay less than the original tax amount.
- Offer in compromise – This method lets you settle taxes for less than you owe by making an offer to the IRS on what you can pay.
- Declared currently uncollectible – The IRS may review your situation and temporary stop collection proceedings if you meet qualifications. Your financial situation will be reviewed at a future date to proceed with collections giving you time to improve your finances.
- Penalty abatement – This allows penalties to be waived from payment that accrued on the overall tax amount due. For many, this may give a big decrease in what is repaid.
- Financial hardship – If you have no way of making payments or have no cash or assets of value the IRS may cease collection efforts against you until your financial situation improves.
A tax attorney or tax expert can provide assistance in settling taxes. Working with a professional gives a better understanding of how certain options fit your situation and make sure procedures are followed accordingly when applying.
Tackling Tax Debt When You’re Financially “Up Against The Wall”
The IRS has wide reaching powers to collect on delinquent tax debt, which includes levies, wage garnishments and liens. But if you’re drowning in tax debt , there are a few things you can do to resolve your tax debt issues.
Things you should do immediately to handle your tax issues:
- Contact the IRS immediately. Or, if you owe state taxes, contact your state taxing authority. Communication in key when you owe back taxes. Failure to communicate with taxing authorities will only exacerbate your situation. You can call or even write the IRS or state taxing authority detailing your financial situation.
- Understand your rights. In the case of the IRS you have a right to challenge the validity of a tax assessment made against you. You also have a right to request a payment arrangement or even request a settlement. However, the IRS has the right to deny your request; but only if they provide a valid reason. Also, the IRS and state taxing authorities are prohibited from treating tax debtors in a demeaning or disrespectful way. For example, the IRS agents or state taxing authorities are prohibited from making threats against your person or using profanity when speaking with you.
- When asking for a payment arrangement, be prepared to provide financial data that proves that you cannot pay your taxes immediately. The IRS and state taxing authorities will generally request that you provide bank statements, paystubs and a monthly budget that details your income and expenses. Generally speaking if your payment arrangement only spans a year, you will not be denied a payment arrangement.
- If you are facing a tax levy or wage garnishment, filing bankruptcy will stop the collections actions of the IRS and if your taxes meet certain criteria, you may be able to discharge than in bankruptcy.
How Can I Get Tax Debt Relief in Bankruptcy?
Eliminating Tax Debt in Bankruptcy
It is possible to have certain tax debt eliminated in bankruptcy but under special circumstances. While you can include them in your bankruptcy filing along with other outstanding debt, in some cases, you’ll still be responsible for them at the end of a Chapter 7 bankruptcy or make payments on them as part of your Chapter 13 bankruptcy repayment plan. If you are looking to have tax debt discharged, Chapter 7 is a better option; only if they qualify.
There are certain conditions that apply for having tax debt be eligible for tax debt relief:
- Taxes have been accessed by the IRS within 240 days of your bankruptcy filing. The timing could vary on this if an offer in compromise was made, the IRS suspended collection activity or you filed a previous bankruptcy.
- Tax returns have been filed for the debt that you wish to have discharged. Taxes should have been filed at least 2 years prior to your bankruptcy filing.
- The tax debt in question should be at least 3 years old prior to filing.
- The taxes should be income taxes.
- Tax fraud or evasion has not been committed. Tax returns previously filed should contain correct information.
Bankruptcy may prevent the IRS from garnishing your wages or seizing funds from your bank account (also known as a bank levy). If you have a tax lien on your property, bankruptcy may not be able to remove it through tax debt relief. You may qualify to pay off your tax debt through Chapter 13 in which, you could be required to pay all or a portion of your outstanding debt. Review your financial situation with a legal expert to determine if bankruptcy is the best option.
Taxes, Debt Forgiveness and Bankruptcy
Debt Forgiveness and Bankruptcy
Debts forgiven in bankruptcy are never taxable. However, some debts forgiven outside of bankruptcy may create a tax liability for the debtor. Let’s take a look at few tax issues debtors may face after settling debts outside of bankruptcy:
Debt Settlement On Credit Cards
As we have mentioned previously, many debtors are so anxious to avoid bankruptcy that they are willing to pay to have debts settled for “pennies on the dollar.” The biggest problem with credit card debt settlement, outside of the fact that it rarely works out as advertised, is that the forgiven debt is treated as income by the IRS. This means that if the debtor does manage to have $10,000 of credit card debt forgiven without the help of bankruptcy, the IRS will require the debtor to pay taxes on it. If the debtor doesn’t have the cash, this could create an even larger problem.
Short Sales
In an attempt to avoid foreclosure and bankruptcy, some homeowners seek out short sells and the forgiveness of their mortgage balance. This may seem like a sweet deal for debtors wanting to avoid bankruptcy; but the deal can sour if the mortgage balance is not forgiven in a timely manner. Right now, the IRS is waiving tax liability for mortgage debt forgiven if the short sale was for at least $50,000 less than the balance of the mortgage. However, this waiver expires December 31, 2012. That means that the short sale and debt forgiveness must happen before that date and if it doesn’t, the debtor will owe taxes on the mortgage balance.
Before a debtor decides to seek debt forgiveness outside of bankruptcy, they need to closely examine how such a move will impact their tax liability.
Can Bankruptcy Be a Solution for Tax Debt Relief?
Taxpayers are often under the impression they cannot get tax debt relief . While bankruptcy is a powerful legal tool that may help you gain control of your finances and eliminate qualifying debt, it can help discharge tax debt in certain circumstances.
There are different types of tax debt consumers deal with, yet in bankruptcy income tax debt is the most common that is dischargeable after meeting specific requirements. If you intend to include income tax with your bankruptcy filing you are required to have all income tax returns filed and current. This means tax returns in relation to the debt you want to discharge should be filed with the Internal Revenue Service (IRS) prior to your bankruptcy filing.
Debt associated with filed returns after 3 years have a better chance of being discharged if the IRS is unsuccessful in collecting against them. If your tax debt doesn’t qualify to be discharged, you may still benefit from filing Chapter 13 bankruptcy . This option may help you come up with an affordable repayment plan that may last from 3 to 5 years. You can negotiate an amount to pay and once the court approves the plan, the IRS will accept payments under the new payment schedule.
Bankruptcy may help reduce or eliminate penalties and interests associated with outstanding tax debt. The filing process may also stop IRS collection attempts including property seizure and garnishments. In understanding if your tax debt is eligible for bankruptcy relief, factors such as the type of tax, when it was filed, the age of the tax and when it was assessed should be reviewed with an experienced bankruptcy attorney.
Tax Debt Relief In Bankruptcy
Under bankruptcy law, debtors can discharge certain types of tax debt in Chapter 7 bankruptcy or Chapter 13 bankruptcy. However, if a tax debt is secured by a lien against your assets, you will not be able to use bankruptcy to get rid of the lien.
Rules that apply to discharging taxes in bankruptcy:
- You cannot discharge tax debt that was just an assessment for taxes on a tax return you NEVER filed. You must file your taxes in order to discharge any tax debt associated with that filing. This is just one of the reasons why it is important to file your taxes in a timely manner, failing to do so could delay or eliminate your ability to discharge tax debt.
- The tax returns for which you want to discharge the tax debt must have been due three or more years before you file bankruptcy. For example, if you filed bankruptcy in 2010, then you might be able to discharge tax debt from 2007.
- If you were convicted of trying to evade paying taxes you will not be able to discharge your tax debt in bankruptcy.
- The taxes you owe must have been due to the government for at least 240 days before filing bankruptcy. For example, if you received a tax bill from the government for the first time 30 days ago, you would not be able to have it discharged in bankruptcy.
If you owe tax debt and are unable to pay it, please contact the taxing agency to let them know about your situation. State, local and federal taxing authorities have the power to grant hardship deferments to those who are unemployed or have some other financial crisis.
Keeping Tax Records
In order to avoid getting into tax debt, you must file your tax returns promptly and accurately. Keeping a file of your transaction records is very important so that you don’t miss out on anything when it’s time to file your tax return. However, they can accumulate over time so you need to check your files every now and then to make sure that you don’t keep the ones you no longer need!
Some transaction records need not stay in your files too long. Examples of these are ATM receipts and deposit slips. You can discard them right after you find the corresponding transaction on your monthly bank statement. You can also throw away your cable, telephone and utility bills once you have received the new bill showing your latest payment. You will not need these! The same thing applies to your credit card statements as well. However, you may still want to keep your bills if you think your going to need it later as reference for tax exemption.
You can keep a file of your monthly bank statements until you receive your year-end statement. After you have checked that the year-end statement is accurate, you can trash the monthly statements. Even after you have already filed your tax return, you still need to keep those year-end statements for the next three years. For those who are self-employed, you can keep those statements for up to six years.
If you have purchased stocks or funds, you must keep any documents relating to them for as long as you have those investments. Make sure you also keep year-end statements of these types of investments. This may come handy when you sell your shares.
Although it is ok to discard your tax returns after six years, you may want to keep them for record purposes. Your tax return contains information that you may need in the future. Supporting documents like cancelled checks, receipts, etc. can go to the trash bin. Once you have received your W-2, you won’t need your pay stubs, so that can also go. You may still want to retain receipts for home improvement expenses. You may need them if ever you have to sell the house, so you can show how much you have spent.
In discarding paper documents, always make sure that you destroy them thoroughly to save yourself from being a victim of identity theft. It is best to shred statements, bills and other important documents before you throw them away.
Unpaid Taxes: What You Should Know about Tax Liens
What You Should Know about Tax Liens
A tax lien is placed by the Internal Revenue Service (IRS) when taxes have not been paid. Basically, it’s a claim from the government on your property and once it is issued, it can attach to just about anything you own.
When the IRS places a tax lien because a taxpayer has unpaid taxes the action is enforced if a taxpayer neglects to appeal or work out a solution with the IRS to resolve the liability. Once your tax liability is assessed, you receive a notice demanding payment from the IRS but fail to pay toward tax debt within 10 days of being notified, the IRS files a lien. Even if you receive notice of a lien being filed, you still have an opportunity to stop the process but working out an agreement with the IRS. There are installment plans available or if you qualify an offer in compromise may help resolve tax debt .
The lien covers taxes owed, including penalty fees and accumulating interest. Items subject to a lien include rental income, a vehicle, a house and securities. Any personal property with value is subject to a lien. When you sell you property the IRS is entitled to profit; taking it and applying it to the outstanding taxes. A lien stays in place until the tax liability is satisfied. A tax lien may have serious effects on your credit rating so many taxpayers look to avoid the action. Questions and concerns can be discussed with a tax attorney or tax expert.
How Waiting to File Bankruptcy May Discharge Tax Debt
Many are under the impression that tax debt cannot be discharged through bankruptcy. Yet, tax debt could qualify for elimination under certain conditions in either Chapter 7 or Chapter 13 bankruptcy .
Tax debt may be eligible for discharge under these requirements:
- Three years before filing your petition your taxes were due. The timing may vary if tax returns related to outstanding tax debt had an extension request.
- Two years before filing your petition you filed your tax returns. This means tax returns have been filed for years before filing for bankruptcy protection.
- Tax debt should be accessed 240 days before submitting your bankruptcy petition. This means the Internal Revenue Service (IRS) has reviewed your debt before your filing. Timing on this may vary if an offer in compromise was submitted before the filing.
- No fraud or tax evasion was committed. It’s unlikely you’ll be granted a discharge for outstanding tax debt if tax fraud was committed or you purposely tried to evade tax payments.
You may still need to satisfy debt if you have a tax lien before your bankruptcy is filed. A lien may be against your property but if you sell it, the IRS may look to satisfy outstanding taxes owed from proceeds. On the other hand, the filing may wipe your personal obligation to pay. Since certain requirements have time restrictions this may be an advantage for you in getting tax debt discharge. If you are considering bankruptcy as an option for tax debt, discuss your situation with an experienced Dallas bankruptcy attorney .
The post Tax Debt Relief appeared first on Allmand Law.
What Bankruptcy Can & Cannot Do For Federal Tax Debt
If you have federal tax debt, you may be wondering if filing for bankruptcy can do anything to help your situation. You may have even heard commercials offering the hope of tax debt relief in bankruptcy, but it’s actually not that simple. Most tax debts can’t be discharged by bankruptcy. And unfortunately, if you are being audited, a bankruptcy filing won’t stop the audit – it will simply suspend any collection actions while your case is pending.
What bankruptcy can and cannot accomplish:
- Chapter 7:
- The taxes in question must be federal income taxes.
You will still be responsible for paying property taxes, tax liens, fines,
and penalties. - You must have filed a return for the debt you are trying to clear more
than two years before filing and the tax year of the liability needs to
be at least three years ago. - The tax liability must also have been assessed by the IRS at least 240
days before the filing. - If the debt is not eligible for discharge, the borrower may be able to
offer in compromise or enter into an installment agreement to settle the debt. - Bankruptcy will not help if you attempted to evade paying taxes or filed
a fraudulent return.
- The taxes in question must be federal income taxes.
- Chapter 13:
- Under Chapter 13, you will be responsible for paying the non-dischargeable
or priority tax debt relief through a repayment plan while the unsecured,
non-priority tax debt is eligible for discharge at the end of the repayment plan. - It is unlikely that you will be required to repay the full amount of tax
debt you owe. - Even if your tax debt is classified as priority, you will still be able
to pay it down throughout the course of the plan. This means that you
will not have to liquidate in order to pay the full amount immediately.
- Under Chapter 13, you will be responsible for paying the non-dischargeable
There are a number of legal issues that can arise in the bankruptcy process, so if you have old tax debt, we strongly advise you to contact a Dallas bankruptcy lawyer at Allmand Law Firm, PLLC. We are available to assess your individual situation and recommend a course of action best suited to your needs. Our bankruptcy attorney is Board Certified in Consumer Bankruptcy by the Texas Board of Legal Specialization, so you can feel confident that your case will be in excellent hands.
Property Taxes and Bankruptcy
Many debtors behind on both their mortgage and property taxes wonder if bankruptcy can be used to stop a property tax sale of their home.
Bankruptcy Can be Used to Stop a Property Tax Sale
Fortunately for debtors facing a property tax sale of their home, bankruptcy can be used to stop the sale if they move quickly.
Here’s what you need to do:
- Before filing for bankruptcy, find out if there is a property tax lien on your home. In the state of Texas, ad valorem taxes are given the highest priority of all liens and if property taxes are owed, by January 1st of each year, a lien will be placed against the home.
- Find out how much you owe on your property taxes before you file bankruptcy. Are you able to pay cash for this amount to have the lien removed? If it is a small amount and you need the lien removed because you are trying to sell the property you may want to consider paying off the lien immediately. However, you may not want to do this if you are considering filing Chapter 7 or Chapter 13 bankruptcy soon. Speak with your bankruptcy attorney before you pay off the property tax lien to find out how it might impact your bankruptcy case.
- Work with your bankruptcy attorney to determine which type of bankruptcy is a good fit for your financial circumstances. If you file a Chapter 13 bankruptcy you will have an opportunity to pay off your lien over a 3 to 5 year period. However, the lien will not be removed from your records until it is fully paid. If you decide to file Chapter 7 bankruptcy and the lien is paid off fairly quickly then you will receive the benefit of having the lien immediately removed from your records.
Have More Questions About Property Taxes and Bankruptcy?
If you have any questions about property taxes and bankruptcy don’t hesitate to give us a call. If you would like, you can also fill out our contact form to set up a free consultation.
Can Bankruptcy Protect My Income Tax Refund?
Does Bankruptcy Protect Income Tax Refunds?
January through April is tax season and like many consumers you may be anticipating a tax refund. If you plan on filing bankruptcy during this time period, you may have concerns about how you can protect your refund from creditors. While many debtors may not want to disclose they are expecting a refund in fear of it being seized by the trustee, telling your bankruptcy attorney should be a priority.
Whether you have filed your bankruptcy case or you are considering filing for protection sometime during tax season, you should tell your attorney you are expecting a refund. Depending on your state, you may qualify for exemptions that can protect your tax refund from creditors. Each state has a certain exemption amount that can be applied toward personal assets. Your refund may also qualify for protection if it includes a child tax credit or earned income credit.
When it comes to tax refunds and filing bankruptcy it is important to review details with your attorney. If you have not filed for bankruptcy yet, you may be advised to wait until you have used your refund. It is common for tax refunds to be used to meet family needs and necessities.
If you decide to withhold tax refund information from your attorney or trustee, this could result in legal consequences. Your refund could go straight to your trustee from the Internal Revenue Service if the trustee submits a request. To understand your protection options it is best to disclose to your bankruptcy attorney you are expecting a refund.
Tax Refunds Must Be Disclosed in Bankruptcy Filing Even if It’s an Estimate
In the bankruptcy case (Laroche, Wayne W. and April J.; In re), the bankruptcy court ruled that debtors filing bankruptcy must disclose their tax refund even if it is only an estimate based on previous years.
The details of the bankruptcy case:
In the Chapter 7 bankruptcy case the debtors failed to disclose their estimated 2008 tax refunds during the first meeting of the creditors on December 15, 2008. On February 13, 2009, the bankruptcy trustee filed her interim report noting the missing tax refund. But on March 26, 2009, the bankruptcy trustee received the debtors’ $4,420 tax return and scheduled it as an asset of the estate. However, the debtors’ tried to claim the tax return as exempt.
The tax return was not exempt and was considered an asset in the bankruptcy estate. Furthermore, the debtors were required to file an estimated tax return with their bankruptcy paperwork and they failed to do so. This could have given the impression that they were attempting to hide an asset; but the bankruptcy judge recognized that it was a common error.
The bankruptcy judge said:
“Although the debtors’ actions in this case are not a model for what should have occurred, their actions likewise do not rise to the point of showing that there was any intent to conceal an asset of the estate or to act in anything but good faith,” the court said. “The court’s conclusion is also based upon the widespread notion, as the court has noted in other cases such as this one, that attorneys for debtors were not aware that tax refunds were and are property of the estate.
Hopefully, cases such as this one and other related cases, send a clear message to practitioners that tax refunds must be disclosed on Schedule B, even if the amount is an estimate based upon prior years experiences.”
Bankruptcy and Taxes: Can I Discharge Unpaid Income Taxes in Bankruptcy?
Bankruptcy and Unpaid Income Taxes
Certain income tax debt may qualify for discharge through bankruptcy but you need to have your income taxes filed. Bankruptcy and taxes: t is unlikely bankruptcy will wipe out unfiled tax debt but there are specific requirements that need to be met in order for tax debt to be successfully discharged. Chapter 7 bankruptcy may be an option to eliminate certain tax debt if it qualifies, but Chapter 13 bankruptcy may help repay what you owe with manageable payments.
Determining Whether or Not Unpaid Taxes Can Be Discharged
In determining whether or not unpaid taxes can be discharged you’ll need to review your situation and understand where you stand. Unpaid taxes often result in unfiled tax returns. One of the requirements needed in order for tax debt to be considered for discharge includes being up to date on tax filing. Chapter 7 has several requirements that include having tax returns filed for at least the last 2 years if the return was due within the last 3 years. The debt in question should also be accessed by the Internal Revenue Service (IRS) within 240 days of your bankruptcy filing.
If you have yet to file your returns, you may need to seek assistance from a tax professional to get caught up and review payment options with the IRS. Another option to help you make payments on outstanding tax debt is Chapter 13 bankruptcy. In Chapter 13, a repayment plan is created based on your income and living expenses. The plan is approved by the court which may last up to 5 years; meaning the IRS is forced to settle on the payment arrangement.
Concerned Your Unpaid Income Taxes? Perhaps Bankruptcy Can Help
If you aren’t sure what to do regarding your unpaid income taxes and considering bankruptcy, you can contact us today to receive a free consultation. We are always here to help.
Don’t Let Unfiled Taxes Destroy Your Bankruptcy Case
Considering Bankruptcy and Haven’t Filed Taxes?
Properly filing your taxes is an important part of making sure that your bankruptcy case goes smoothly. Failure to file taxes can end in the dismissal of your bankruptcy case, not to mention a waste of your time, money and energy.
Here’s what you need to know:
- If you have not filed taxes for the past few years, you will not be able to file bankruptcy without doing so first. If you’re filing Chapter 7 bankruptcy , the bankruptcy court will usually request tax documents for at least the past two years; but they could request more. If you haven’t filed taxes for two or more years expect to have the IRS submitting a claim for payment when you do file bankruptcy. As a matter of fact, they probably have already made a tax assessment against you. However, having a tax assessment is not the same as having a tax return. The bankruptcy court demands a tax return if you want to file bankruptcy.
- If you’re filing for Chapter 13 bankruptcy , you will need to provide tax returns for the past four years. Once again, if you failed to file taxes do so now so that you can avoid problems with your bankruptcy case.
- If you are unable to pay your taxes, do not allow that to stop you from filing a tax return. The bankruptcy court does not require you to pay the taxes in order to satisfy the requirement of submitting your tax return.
- Finally, be prepared to repay taxes in bankruptcy especially if you did not file the tax return on time. The bankruptcy court will not discharge taxes for tax returns which are filed right before you submit the bankruptcy petition. This means that you can’t discharge taxes for 2008 if you just filed the tax return in 2011.
Getting Rid Of Tax Liens After Bankruptcy
Tax Liens After Bankruptcy
Tax liens and other types of liens do remain after a bankruptcy discharge; however, they do not attach to any property acquired after your bankruptcy discharge.
Getting Rid of Your Tax Liens After Bankruptcy
Also, you may be able to have a tax lien release or removed if the following applies:
- The tax lien was filed too soon or the filing of the tax lien failed to follow IRS procedures.
- You entered into an installment agreement to pay the tax debt once your received the notice of a tax lien.
- If the tax debt was not discharged in bankruptcy and withdrawal of the tax lien will enable you to pay the tax debt quicker.
- A Taxpayer Advocate has determined that the withdrawal of the tax lien would be in your best interest or the IRS has determined that the withdrawal of the tax lien will be in the best interest of the government.
- You had already paid the tax debt owed before the IRS filed the lien.
- The tax lien was filed while you were in bankruptcy and were protected by theautomatic stay .
- The statue of limitations for collecting the tax debt expired at the time the lien was filed.
- You did not have an opportunity to dispute the assessed tax liability.
It’s important to remember that after 10 years a tax lien expires unless it is renewed by the IRS, in the case of a tax lien. Also, the IRS may be willing to release a tax lien if you are trying to sell your home.
Have More Questions About Tax Liens and Bankruptcy?
If you have any questions about tax liens and bankruptcy we are always willing to help. Submit your questions here and or set up a free consultation and we will get back to you.
Understanding Tax Liens and Bankruptcy
Dallas Bankruptcy Law Firm
Eliminating certain types of debt through a discharge is one of the hallmarks of the bankruptcy process. A debt discharge will eliminate your personal obligation to pay a debt, which can free resources and provide the financial fresh start you need to get a hold of your finances and find stability in your future.
Because many people are aware that a debt discharge exists at the end of a Chapter 7 or Chapter 13 bankruptcy case, but may not be certain as to how it specifically works or what debts it can discharge, our Dallas bankruptcy lawyers at Allmand Law Firm, PLLC work closely with clients to educate them about the process, the laws, and what applies to their unique situation.
For the most part, our Dallas Bankruptcy Law Firm always explain that unsecured debts are dischargeable in bankruptcy, the most common of which is credit card debt. Secured debts, on the other hand, are not. These debts backed by collateral include home mortgages and car loans, and they are voluntarily incurred. Liens, however, are involuntary debts, and they imposed by law.
Most tax liens cannot be discharged in bankruptcy, including federal tax liens, which means you will continue to owe them at the end of a Chapter 7 case, or repay them in full as part of your payment plan in a Chapter 13 case. Bankruptcy unfortunately does not wipe out tax liens recorded prior to filing. While a debt may be wiped out, a lien on your property that is recorded prior to filing will remain on the property.
However, there may be cases where certain debts for federal income taxes may be wiped out in a Chapter 7 case. In order to be eligible for a discharge under Chapter 7, all of the following must apply:
- The taxes are income taxes
- There is no evidence of fraud or evasion
- The debt is at least three years old
- You filed a tax return for the debt at least two years prior to bankruptcy
- You were assessed by the IRS at least 240 days prior to filing
Because issues involving tax liens and bankruptcy can be complex, and because your options depend largely on the unique facts of your situation, it is best to review the details of your finances and goals with an Bankruptcy Law Firm who has experience guiding clients through the bankruptcy process. Our legal team at Allmand Law Firm, PLLC do precisely that, and our Dallas Bankruptcy Law Firm is readily available to provide you with a free case review to review your options and discuss what we can do to help.
Facts You Need To Know About Bankruptcy and Taxes
It’s tax season again and many of you may be considering bankruptcy.
Things you need to know about how taxes can impact your bankruptcy:
- If you receive a tax refund after you file bankruptcy, that refund may become part of the bankruptcy estate. What that means is that the bankruptcy trustee can use your tax refund to repay creditors, even if you filed a Chapter 7 bankruptcy.
- Your tax refund may be able to receive protection by using a bankruptcy exemption, if it is small enough. This is something you need to discuss with your bankruptcy attorney because he/she may decide that your bankruptcy exemptions are better suited protecting other, more important assets.
- If you file your taxes and receive your tax refund before filing bankruptcy your tax refund might not be considered as part of the bankruptcy estate. This will be determined by how much of a tax refund you received and when you received it. For example, if you received a $5,000 tax refund a few days before you filed bankruptcy, that money may still be considered part of the bankruptcy estate. Also, if you have unusually large tax refunds, a bankruptcy trustee may decide that you are attempting to hide assets via taxes. On the other hand, if you received a $300 tax refund, six months before you filed bankruptcy and spent the money on bills and other necessities, the tax refund would not be considered part of the bankruptcy estate. Because this area of the law came sometimes become murky, it is best to discuss your tax refund and bankruptcy with a qualified bankruptcy attorney.
- Debtors filing bankruptcy must disclose any tax refund they are planning to receive. Failure to disclose a tax refund can cause your bankruptcy case to be dismissed.
- A bankruptcy trustee has the power to direct the IRS to send your tax refund directly to the bankruptcy court.
Bankruptcy Can Help Resolve Your Tax Problems
When it comes to tax debt , most of us believe that the only way to get the IRS off our backs is to grit our teeth and pony up the penalties. However, while common wisdom may indicate that the only certainty in life is death and taxes, that isn’t always the case – especially if you resort to filing for bankruptcy to solve your tax problems. While bankruptcy cannot eliminate some debts owed to the federal government, there are several types of taxes that can be eliminated under a Chapter 7 or Chapter 13 bankruptcy .
Therefore, if the IRS is knocking on your door or you believe you won’t be able to pay tax debts from previous years, here is what you need to know about solving your tax problems via bankruptcy:
- The types of taxes that can be discharged through bankruptcy will depend on whether you file for Chapter 7 or Chapter 13 bankruptcy. For the taxes that you can’t discharge through a Chapter 7 bankruptcy (these will likely be your most recent bill to the IRS), you might be able to pay them off through a Chapter 13 bankruptcy without being penalized with interest payments. Be sure to talk to your bankruptcy attorney about which bankruptcy option is the right one for your specific financial predicament.
- While the type of taxes owed will ultimately determine if they can be dismissed, the general rule of discharging taxes via bankruptcy is this: if you faithfully filed honest and detailed income taxes, and the taxes owed are older than three years from the date of your bankruptcy, then the courts can discharge these debts. However, take note that the IRS will go through your old tax returns with a fine-tooth comb – therefore, if they discover any inaccuracies or dishonesty in your tax returns, you’ll lose your right to discharge your old tax debts.
- Keep note that your tax returns could end up getting your bankruptcy petition dismissed. If you file your tax return late – or fail to file one at all – during the course of your bankruptcy petition, you could end up seeing your case entirely dismissed. So whatever you do, stay on top of your tax return.
Bankruptcy could be the ultimate solution to your tax problems. Talk to your bankruptcy attorney today to see if it’s the right solution for your financial situation.
Bankruptcy and Tax Debt: What You Need to Know
There are various advertisements on television and radio that encourage consumers to utilize special services aimed at getting rid of tax debt through bankruptcy. Keep in mind the process may not be as easy as they make it sound. Some tax debts may not qualify for elimination in bankruptcy (Chapter 7), but they may qualify for inclusion of a repayment plan (Chapter 13) to help you manage them better.
Bankruptcy may be able to help you deal with tax debt, but no matter your financial situation, there are things you should know about tax debt and bankruptcy. To get further details discuss the matter with a qualified bankruptcy attorney or tax specialist.
- Certain types of tax debt may be eligible for discharge, but they must
meet strict qualifications. - The tax in question should be income tax debt. Certain tax debt related
to fraud penalties or payroll may not be discharged. - Tax forms filed should not include fraudulent information. You should not
be found to evade or avoid filing tax returns. - To discharge or eliminate tax it should be at least three years old. In
other words, the tax debt should have been due 3 years prior to your bankruptcy filing. - Tax returns should be filed 2 years before you decide to file bankruptcy
for debt related. In many cases, most tax returns for previous years should
be filed. In some situations, you may not be able to file bankruptcy unless
your tax returns are filed. - The Internal Revenue Service (IRS) has accessed the tax debt 240 days before
you file bankruptcy (also known as the 240-day rule). This may vary if
collection attempts by the IRS were suspended or an offer in comprise
was completed. - Federal tax liens may still be attached after bankruptcy if the IRS enforced
it before you filed.
Tax Debt Interest Cannot Be “Crammed Down” In Bankruptcy
In a recent Chapter 13 bankruptcy case, the bankruptcy court was faced with the issue of how to apply interest on tax debt in a repayment plan.
As stated in the Trustee’s original motion filed in each case to modify the subject claims, Debtors’ respective proposed Chapter 13 plans and their Orders of Confirmation provided for payment of Creditors’ claims without interest. Creditors’ proofs of claim, in stark contrast, provided for 24% interest. In response to the Trustee’s objection filed in each case to pay Creditors’ claims at a significantly reduced interest rate in accordance with Till v. SCS Credit Corporation, 541 U.S. 465, 479 (2004) (holding that the “prime-plus” or formula approach best equates with the “present value” requirement of the Chapter 13 “cram down” bankruptcy provision for allowed secured claims codified in § 1325(a)(5)(B)(ii)), Creditors unsuccessfully argued that their claims were shielded by the anti-modification protections of § 511(a), which was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”).
There is an important distinction to be made in this Chapter 13 bankruptcy case. Section 511(a) of the bankruptcy code specifically states that tax claims are exempt from modifications to their interest rate. This may include tax claims which have been acquired by third-parties depending on the state in which the bankruptcy is filed. In the state of Texas, if a third-party acquires a tax lien, that debt retains its secured and priority status, including the protection from “cram downs” in bankruptcy. However, any interest rate applied to tax debt held by the state or by third-party creditors must be justified. In other words, a creditor cannot simply tack on whatever amount of interest they choose in Chapter 13 bankruptcy.
Most Common Questions about Bankruptcy and Income Tax Debt
Bankruptcy and Income Tax Debt
Dealing with income tax debt can be frustrating and for some, overwhelming. Bankruptcy has been known to help deal with credit card debt , medical bills and even helping people keep their homes, and the process may help with income tax debt. It’s not uncommon for consumers to ask about bankruptcy and how it can help them deal with the IRS.
The following questions are often asked by those considering filing:
Can Bankruptcy Discharge My Tax Debt?
This depends on your unique situation and whether or not your income tax debt qualifies. If you file a Chapter 13 bankruptcy , tax debts are repaid in a structured payment plan. In a Chapter 7 , the debt in question needs to meet the following conditions to be discharged:
- The tax debt is accessed by the IRS at least 240 days before bankruptcy filing.
- The debt in question is income taxes and it is at least 3 years old.
- Tax returns were filed for the past 2 years before filing for bankruptcy.
- No tax fraud or evasion has been committed.
Is Bankruptcy an Option for Tax Settlement?
This often depends on your situation. If a Chapter 7 bankruptcy isn’t an option, a Chapter 13 could be another solution depending on qualifications.
Does Bankruptcy Remove Tax Liens?
Chapter 13 can help remove tax liens under the repayment structure. Once you successfully pay the amount under the plan the lien can be removed. Removing a lien under Chapter 7 may be challenging unless there is a solution to satisfy the lien.
What if I Don’t Qualify to Have My Tax Debt Discharged in Chapter 7?
A Chapter 13 bankruptcy may allow you to make payments based on your ability. The IRS also offers different solutions to help settle your debt including Offer in Compromise and installment payments. Review your situation with a qualified attorney to learn if bankruptcy is the option for you.
The post Bankruptcy and Taxes appeared first on Allmand Law.
Millions of Americans are dealing with vast amounts of student loans that can be difficult to manage. While some borrowers may have reasonable repayment terms based on the amount of money the student borrowed, other students get locked into decades-long repayment plans they may never pay off. Many borrowers are becoming more interested in the […]
The post What is Considered Undue Hardship for Student Loans in CA? appeared first on The Bankruptcy Group, P.C..
Yes, you may file a Chapter 7 or Chapter 13 bankruptcy as long as you can establish and prove your average income for the six months prior to filing your case.
If you are self-employed or an independent contractor looking into filing Chapter 7 or Chapter 13 bankruptcy, you need to verify your income. While it is a requirement for all bankruptcy filers to report and document their income, this can be tricky for the self-employed. So, how do you go about verifying your income?
What is the Purpose of Income Verification in a Chapter 7 or Chapter 13 Bankruptcy Filing?
Reporting and documenting your average income for the six months before filing your Chapter 7 or Chapter 13 bankruptcy case is required of all bankruptcy filers. Income verification will enable the bankruptcy court to decide if you are eligible for either type of bankruptcy. Income details are required when you undergo the “means test”, should you file for Chapter 7 bankruptcy. On the other hand, for Chapter 13 bankruptcy, your income is a major factor in crafting your repayment plan, a document that shows how you will pay back your creditors. Your bankruptcy lawyer in Seattle will be able to help you understand the nuances of both Chapter 7 and Chapter 13 bankruptcies and provide you professional legal advice on which one is applicable to you.
How WIll I Go About Verifying My Income As A Self-Employed Individual?
Determining your average monthly income is a challenge to anyone whose income is not fixed and is dependent on the number of projects one comes across as a self-employed individual or as an independent contractor. The cash flow can be irregular, oftentimes, undocumented, unless you track job orders and send out invoices to your clients. It is even riskier if you are unsure if you filed everything correctly because it may result in dismissal of your bankruptcy case. All filers of bankruptcy should be sure of the financial information that they declare because there have been instances of bankruptcy cases being dismissed because of miscalculations or unintentionally declaring incorrect figures in the documents. For this reason, tracking and documenting your income as early as now is critical, especially if, due to unforeseen events, you may need to file for bankruptcy. Working with a Seattle bankruptcy lawyer at the onset may prevent the risk of making mistakes in the bankruptcy filing process.
What are the Means to Monitor My Income?
You only need basic accounting or bookkeeping skills to keep track of your income. Balancing a spreadsheet where you list down your income and expenses or creating profit and loss statements is already a good start. However, bear in mind that this DIY documents might be questioned by the bankruptcy court because is there is no third party involved to provide the checks and balances. It will help if you hired a bookkeeper or accountant to do it for you. Otherwise, you must be able to come up with enough documentation to back up your declaration. Talk to a Seattle bankruptcy lawyer to make sure you are on the right track and prevent the risk of dismissal of your bankruptcy case.
Are There Specific Documents That Can Support My Income Declaration?
There are several ways by which you may determine your income for the bankruptcy court:
✓Bank statements. These are very useful because all deposits, whether cash or check are recorded by your bank. You may also obtain copies of the checks from your bank. Alternatively, if you have online banking access, you can actually print them from your computer.
✓Signed statements. Always get a signed statement from your clients as proof of the cash payments you received from them. You may deposit the cash to your bank account and attach the signed statement to your bank statement.
✓Tax returns. Your tax return is good documentation of your income, that is if your tax return covers the time period six months prior to your bankruptcy.
✓Check Stubs. Probably the best way to determine your income is through check stubs. Always save them to support your income statements. Otherwise, try to obtain other proofs of payments from your clients
✓Invoices and Contracts: The contracts you signed off with your clients prior to procuring your services or the invoices you sent out to them are useful to verify your income. If you did not issue invoices, start sending them out if you are looking into filing bankruptcy.
If you or any self-employed individual you know is considering bankruptcy, it is in your best interest to talk to an experienced bankruptcy lawyer in Seattle. Our bankruptcy lawyers at Northwest Debt Relief Law Firm will help you be better prepared for the bankruptcy process. Our empathic bankruptcy lawyers will help you through the journey of reclaiming your financial freedom. Call us now for a free case evaluation.
The post Can A Self-Employed Individual File For Bankruptcy? appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
As an Arizona attorney I have been involved in thousands of Arizona trustee sales.
Never do a short sale, deed in lieu of foreclosure, allow a trustee’s sale, or a foreclosure to go forward without first obtaining both legal and tax advice. You cannot undo serious mistakes once the process is completed.
What is a trustee’s sale?
A lender uses a trustee to collect the money they have invested in the property by selling the real property at a public auction. If others bid at the auction then the lender is paid. If there are no bidders, then the lender becomes the owner of the property.
Both the trustee sale and foreclosure processes are set by the statutes of the state where your property is located. Not all states have the same law therefore it is very important for you to talk to an local attorney experienced in this area of law. Do not rely on the Internet to provide accurate information because each person’s situation is unique and will dramatically change the legal and tax advice that you should be given.
Never do a short sale, deed in lieu of foreclosure, allow a trustee’s sale, or a foreclosure to go forward without first obtaining both legal and tax advice.
You cannot undo serious mistakes once the process is completed. So not rely on any information from a realtor, next door neighbor or inexperienced attorney. This is your life, your future and you must be fully educated before making any choices. I do not say this in order to scare you, I say it because I have seen hundreds of people facing dire consequences that could have been avoided if they just sought competent legal and/or tax advice.
We have several videos on our web site. Below are just a few that might be of interest:
♦ “Lender’s Foreclosure Rights in Arizona”
♦ “Should I keep my home or let it go into foreclosure?”
♦ “Five Quick Tips on How to Find a Great Attorney”
♦ “Meet Ms. Drain and Suggestions on How to Hire an Attorney”
The post Arizona Trustee Sales, Foreclosures and Short Sales appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.