Owe $120k in taxes + foreclosure, file 13 or payment plan?

[BKpay]

I'm a truck driver. Had my own truck until early 2008, which categorized me as a sole propreitor that received 1099's. From 2004 until 2008 I was hanging on because of high fuel prices, truck payment and an adjustable rate mortgage on the house. I used all my credit cards and any line of credit to try and stay afloat during those years(3 kids and a wife too). I ended up leaving my house because of foreclosure warnings. Went on the road and am basically living in the truck for another company.

Haven't paid taxes for the last 3-4 years just to make it. Did file for those years though. I owe about 80-100k in unsecured credit card debt, $250 or so on the mortgage, and the IRS has a lien for about $70k on my house. Also a few civil judgements on the county records for about $2k for the smaller credit cards. Even had a student loan from the early 90's default for $2000, that's how bad it got.

I actually owed about $30k in taxes, but the IRS small business office audited me for 2 years and added $35k for each year. I didn't keep receipts to dispute it, which is my fault. My tax preparer was a local guy who played around with the numbers a lot, and I just went along with it for a few years. To be honest, I was so distraught and depressed, I didn't care to put up a fight. It was just more on top of a mountain of debt I thought I'd never be able to pay.

I want to start paying back now. I know I screwed up in the past, but I want to make it right now. I make about $50-60k year now. What route would you recommend? I thought about a partial pay plan, a compromise offer(tough from what I read to get accepted?), and a chapter 13 since my income is too high for a 7. I also understand the taxes won't go away in a 13 but at least some of the interest will?


Any advice on what to do? Thanks

[FishersMike]

I have also heard an Offer in Compromise is difficult to obtain if the IRS sees that you are young enough to pay them the money - and if your income is high. I did not personally even attempt this route - as I knew it was going to be a difficult battle.

If you do a Chapter 13 what happens is the penalties and interest on the penalties is removed from Priority Tax (basically secured) to unsecured. Also after you file no future interest is charged. So essentially you will get a lot removed assuming you are not in a 100 percent payback plan.

Good luck to you!

[BKpay]

Thanks for the reply Mike

Also got a msg on my phone from the IRS to call back. Should I let them know I probably will file a 13? Or is that a bad idea? Should I enter into a payment arrangement with them in the meantime to head off any more wage garnishments, levies etc? I have about $2k on hand now after getting rid of a lot of pressing issues, but that's probably a drop in the bucket compared to what I owe.

[FishersMike]

I don't know how to answer it - but personally I did not want to tell ANY creditor I was filing Chapter 13 ahead of time as I wanted to be in control of the terms. As far as payment arrangement, I was on an active one at my time of filing. So personally I do not think it will hurt if you want to try to buy time to avoid their actions. I would do it if it were me.

[HHM]

Honestly, based on the numbers, a chapter 13 MAY NOT be feasible, your payment may be too high depending on how much of your tax debt is priority tax debt. If all $120K would be considered Priority Tax debt, your "minimum" payment would be $2,000 per month, not realistic. Don't rule out a chapter 7, there may be a way to get you done. But you are going to need a more pricey attorney than the run of the mill BK attorneys.

The tax is probably a little too recent for an Offer in Compromise. Accepted Offer's are almost non-existent right now.

Since you have other debt, I think a BK makes sense.

[minan]

Bkpay: I filed when I ran into the same situation as you in terms of self-employment. My problem was due to multiple things: 1) I wasn't getting a steady paycheck each month because customers wouldn't pay on time, 2) in turn I used up my savings to pay mortgage, car payment, credits cards, utilities, etc..., 3) when savings ran out I turned to credit cards, 4) thought I could catch up on taxes because I made enough, 5) didn't get proper professional advice, 6) didn't understand what's entailed in running your own business....finally at some point, I saw the mess I was in and got so scared. I didn't say anything, didn't get any professional help/advice. I was depressed and each month kept telling myself I would take the next paycheck and make a payment. Fear was a huge issue. Finally got a wake-up call when the IRS issued a levy. It was too late at this point.

I file my taxes each year and was on a payment plan with the IRS and somehow was convinced I would catchup on the back taxes. Obviously that didn't happen. I still can't believe how stupid I was.

Total between state and fed I have the same amount as you - it does go down when you minus penalties, etc....no way I would have been able to pay all this back if I did it on my own. The continued accrual of interest would have kept me paying for a long time. I decided to file 13 so I could pay it all back within a short time, but with the hope that some amount would be discharged as unsecured such as the penalties.

I have a high monthly payment, however I also make more than you do. That said, I am left with the bare minimum to pay the necessities. I've had to cut back dramatically on expenses and only have the necessities. I'm still not confirmed. 1st 341 in Sept was rescheduled. I'm still scared because my greatest fear is the Trustee won't confirm.

I still get really upset that I screwed up so bad. I've made 5 payments on time each month, however as i said above, I live in constant fear that I won't get confirmed and I'll be back at square 1. It awful right now for me because I'm coming up to the 2nd 341 meeting in about 11 days.

Anyway that's my story. My recommendation is:

1) you talk to several attorneys to see whether a 13 is feasible. At least 13 will offer the automatic stay and the IRS can't come after you
2) Also, based on the age of the back taxes, there's a possibility some of the taxes may not have to be paid back, however this option has very strict criteria that has to be met. Ask the attorneys you talk to about this possibility. This is not an option for me as my taxes are for 2008, 2009 and 2010.

[BKpay]

Thanks again Mike. And thanks HHM. Warning, long story coming.

I originally thought a 7 would be great. I'm about $10k/yr salary over the median for Nevada. Median is $45k or so, I made about $55k this year and last year. I lived in New Jersey since 2001, and moved my stuff to a small apartment in Nevada in January 2010. It is cheap out there, and they really don't care what kind of credit one has, which worked out for me. I was only there maybe 7 times this year for a few days each time. I did consult a NJ bankruptcy lawyer before leaving, and he was all for a 7 until he looked at my pay statements.

Basically, self employment business statements with gross income and deductions. So for example, one week might show $6000 gross, then $2500 out for fuel, $1000 for the weekly truck payment, etc. and what's left for me comes down to $1500ish for that week. Of course, the IRS gets a 1099 from my employer that shows $180,000 at the end of the year, which doesn't help when I call them.

Well anyway, he tried talking me into filing a 13 back then. Said it made more sense. Then I moved to Nevada, or as I like to think of it, my furniture moved to Nevada and I stayed in the truck. I feel I need to do something about my situation now, and stop running from it. I did get a NV license back in the summer, so I suppose I'm officially a resident, even though the foreclosed house is back in NJ.

But I see your logic HHM, and will try to find a good BK lawyer in Nevada to see if a 7 is feasible.

And Minan, everything you said in that first paragraph sounded like what I was/am going through. Some weeks I got paid, some I didn't because of freight or repairs. IRS levied my house for $70k. The lender didn't complete the foreclosure yet after 2 years, and I have to think that's why. Through the last few years, I've been either ashamed, in fear, or in a state of disinterest in most things because I felt helpless to do anything that would fix my finances.

My back taxes are mainly 2003, 2005- present. The last few years I haven't paid, but the bulk of the taxes are 2007 and prior. 2005 & 2006 are the years they added $35k each year to the bill. 2008 to now I owe about $30k without the penalties and interest, definitely something I can look forward to paying off if they would forgive pre-2008 taxes.

[BKpay]

Just found out I'm wrong. Median income for Nevada is $56,612. According to some BK lawyer websites out there, they go by the last 6 month's income for the means test, which was $26k for me. The limit is $28k for 6 mo, so that might be good news. Hopefully

[HHM]

Also, when you talk to the attorney, ask him about a "non-consumer" chapter 7 bankruptcy (if the attorney looks at you with a blank stare, get up and leave). If the bulk of your debt is non-consumer debt, then you qualify for chapter 7 regardless of the means test. And guess what, Income Tax debt is non-consumer debt. Also, it sounds like some of your other debt was business related (non-consumer); so the means test may not even be an issue.

Since the tax debt appears to be older, and you mentioned that you filed the returns when they were due, looks like a good chunk of the debt may be dischargeable. If you find the right attorney, you can probably do a chapter 7, discharge what can be discharged, and anything left over, work out directly with the IRS.

[BKpay]

Thanks again HHM. Did call some lawyers in Vegas yesterday, and all of them insist on a consultation in person only. Of course, I'm across country now, so I'll have to wait a few weeks to find an attorney. I found it a little odd that the lawyers in Jersey had no problem doing an initial consult on the phone, but they don't offer that in Nevada. Will remember to ask about the non-consumer chapter 7

[jetsfan2010]

the "priority" tax debt is the key. good luck to you, if you qualify, freezing the interest and penalties and having a true end in sight for IRS debt is ideal with a 13

[HHM]

Thanks again HHM. Did call some lawyers in Vegas yesterday, and all of them insist on a consultation in person only. Of course, I'm across country now, so I'll have to wait a few weeks to find an attorney. I found it a little odd that the lawyers in Jersey had no problem doing an initial consult on the phone, but they don't offer that in Nevada. Will remember to ask about the non-consumer chapter 7

That is not surprising, really. It is not that they don't do it in NV, you just haven't found one willing to do so. I wouldn't hold that against them, BK attorneys (or any attorney) is not a 1-800 legal help line. The consult runs both ways, you want help, they want clients.